Asset Allocation category

Spotlight Series: Mussie Kidane, Pictet, discusses UCITS.

August 9, 2020

In a recent article for the FT, Sam Jones, looked at the rising popularity of the UCITS structure outside Europe.  Adjustments in EU laws governing UCITS, have allowed Hedge Fund managers to repackage their strategies and so access the retail and institutional investor markets that had been out of reach.  Recent figures valued the UCITS Hedge Fund at $1,500bn, accounting for approximately 7 per cent of the Hedge Fund market.

Originally conceived as a regulatory framework for an investment vehicle that can be marketed across the EU,  maintaining high levels of investor protection, it is now increasingly popular in the US.

Mussie Kidane, Head of Fund Selection, PICTET participated in a panel debate on Retail Distributors and Fund Platforms entitled “How comfortably will the new generation of liquid & transparent Hedge Fund products fit into traditional retail platforms?”  Joining him on the panel were Borja Largo, Head of Investment Consulting, ALLFUNDS and Raphael  Lebrun, Executive Director, NOMURA INTERNATIONAL PLC. The panel was moderated by Amy Bensted, Manager, Hedge Funds, PREQIN.

In an interview for the Spotlight Series, he discussed the usage of the UCITS structure in the alternatives market and the possible pitfalls of using the model to manage investments strategies that it wasn’t designed for.

Post Under: Asset Allocation

Spotlight Series: Philip Hoffman, The Fine Art Fund explains the value of Art as an Asset Class

August 2, 2020

In a report from

The €11.8bn ($15.4bn) Rabobank Pensioenfonds, one of the 100 largest pension schemes in Europe, decided to pull out of funds of hedge funds and put the money into equities, according to its annual report, published last week.  The scheme’s reports show its disaffection with funds of hedge funds began in 2008. The average performance of the five funds of hedge funds it invested in – whose names it did not disclose – was a loss of 12.5%. The report said: “This is better than the return of a large number of other asset classes, but unfortunately there is no absolute positive return. This is disappointing, since hedge funds generally were considered able to give a positive return regardless of market conditions.” more here

The decision to focus on equities is understandable but perhaps they could cast their net a little wider; look at the performance of some of the more niche asset classes.  In a showcase of unusual top performing funds at GAIM International 2010, Philip Hoffman, Chairman, presented The Fine Art Fund as an alternative alternative.

Philip explained to the Spotlight Series, that investing in art is not as alternative as some might think.  Some of the wealthiest families in the world have probably made more from their art investments that all their equities & bonds.  Art is a great long-term value store, it outstrips inflation and is tax efficient.  The Fine Art Fund has traded out every asset at an average IIR of 31%.  And right now, there is a negative correlation between the art market and the equity markets where world record prices are being achieved at a time of economic austerity.

Post Under: Asset Allocation

Big hitters in institutional world discuss alternatives exposure

June 17, 2020

The Big Picture Allocation panel this morning at GAIM was moderated by Dr Nadja Pinnavaia, founding partner of Arity Asset Management who moderated Danny Truell, cio of the Wellcome Trust, Tony Broccardo, cio of Barclays Pension Fund and Thomas Thygesen, chief strategist with SEB’s X-Asset Strategies Team.

Danny Truell, cio of the Wellcome Trust, panellist at GAIM International 2010

Wellcome, the largest medical research charity, has achieved a 29 times return over 25 years of investing. Truell put this down to two things: recognising one’s governing structure is about accountability and not believing that historical correlations are helpful.

Tony Broccardo, cio of Barclays Pension Fund, panellist at GAIM International 2010

Over at Barclays, Broccardo reported that they have a hugely diversified approach which has increased through the 2000s. “We try to smooth out the premium profile” he said and increasingly alternative investment accounts for a significantly large amount of their portfolio. “The last two years have given us confidence that the decisions we have made are right” he said. Liquidity and cash flow were also key for this panel. “We want a combination of stuff that generates cash flows” said Truell, while Broccardo agreed: “Cash flow and staying power are crucial” he said.

Post Under: Asset Allocation

A volatile year so far….

June 11, 2020

An article by Beverly Chandler.

Beverly Chandler will be covering GAIM International 2010, 14 - 17 June in Monaco

This year so far has brought a huge variety of drama for the world, not just for the hedge fund industry.  But our focus here is on our industry and recently it has had to deal with debt, volcanic ash, government change, regulatory and tax challenges and unprecedented wild weather.

Despite everything thrown at it, hedge funds appear to be not just surviving but actually getting back to business and thriving.  Recent research showed in-flows to global hedge funds in February at US$ 16.6 bn and March saw US$ 7.6 bn.  Assets in the industry are now at the highest level for 16 months at US$ 1.64 trillion.

Just as that volcanic ash is beginning to settle, so has the dust of the credit crisis begun to settle as people get back to work, albeit with a new awareness of how scarily close to wrecking it all the economic world came.  And with that realisation has come a raft of regulatory and supervisory proposals, designed to stop a banking and financial crisis on that scale happening again.

The European authorities are just about to announce the outcome of a lengthy process which started with what many felt was a knee-jerk reaction to the financial crisis.  The justification of new legislation aimed at curbing the activities of hedge funds and private equity funds was to mitigate systemic risk but as the Alternative Investment Management Association (AIMA) repeatedly claims, there is little evidence that hedge funds caused the crisis.

While proposals were Europe-wide, the greatest concentration of European hedge fund activity is clearly in England and so it was the British hedge fund community that felt increasingly targeted by an almost vindictive regulatory campaign.

The next wave of attack came in proposed tax changes, coming at the hedge fund industry from all sides, the IMF, the EU and within the UK, from the pre-election success Conservatives. Concerned that banks might re-invent themselves as hedge funds in order to avoid paying proposed new taxes on their profits above a certain level, the IMF proposals included hedge funds and alternative funds in new levies that could add an additional 20 per cent tax on the pre-tax profits of certain banks and other financial businesses.

And who would be most affected by any of these changes?  The investors, who according to a new report in the US, are quite likely to be investors in public pension funds.  The report finds that public pension funds by dollar value, are the largest of the institutional allocators of capital to hedge funds.

Attracted to hedge funds by their uncorrelated returns, institutional investors did take fright at the lack of liquidity in hedge fund and fund of funds during the financial crisis.  And that need for liquidity has certainly been a driver for another trend we have seen over this year so far, the growth of so-called hedge fund-lite products in Europe, which show that UCITS funds (European ‘passported’ funds) have taken in US$ 200 bn since they were first allowed to include hedge funds.

Critics of the hedge fund industry - and there are a few, although not many may be reading this -  just have to remember that over 2008 the S&P 500 recorded a 37 per cent fall while hedge funds, on average achieved losses of 19 per cent.  Hedge funds experienced loss but less of a loss than traditional long only investments and while that still happens, they will always prove popular with investors.

About Beverly Chandler

Beverly Chandler has been a specialist hedge fund writer for a number of years, writing for most of the trade press, a number of national newspapers and publishing a couple of books on the subject.  She will be covering the GAIM International 2010 conference, producing a daily digest of the key outtakes from the event, and interviewing speakers & delegates about prevailing industry trends, their views of the future and why GAIM International is the “must attend” conference in the annual calendar.

Determining The Role Of Alternatives In Asset Allocation Going Forward & Redesigning Your Portfolio Strategy To Fit With The New Realities Of Current Liabilities

June 4, 2020

An Article by Nadja Pinnavaia, Arity Asset Management

Nadja Pinnavaia, Arity Asset Management will be speaking at GAIM International 2010, 14 - 17 June in Monaco

Asset allocation in a portfolio seeks to lower risk through diversification.  However both short-term as well as medium and long-term trends indicate that correlation across major asset classes is rising, resulting in ineffective diversification.  Further, empirical evidence supports rising correlations of nominally diverse markets over time, due to the secular trend of integrated economies and cross-border capital flows.  The result is that diversification today is harder to achieve.  Moreover, short-term convergence of correlation is strongly associated with volatility, under times of duress.  When volatility is approximately two standard deviations away from its medium-term mean, short-term correlations approach one – meaning that diversification fails when you need it most.   A simple increase in allocation to alternatives does not necessarily improve diversification if the factor risk driving the returns is beta-based and therefore subject to those same rising correlations.

In the panel, we explore how structural diversification, understanding the different sources of revenues and sensitivities, can impact the portfolio versus diversification applied at the local/asset class level.   We also discuss how liquidity is typically treated within the context of the portfolio’s current liabilities and how it is and should be accounted for within the risk-budgeting process.

The panel of experts will also share their views on their current positioning, discuss tactical versus strategic determination within their asset allocation, appropriate benchmarks, hedging liabilities and other risk factors. Read more »

Post Under: Asset Allocation

UCITS & Managed Accounts

May 26, 2020

An Interview with Mussie Kidane, Pictet.

Mussie Kidane will be speaking at GAIM International 14-17 June 2020 in Monaco

Mussie Kidane, head of fund selection at Pictet, is speaking at GAIM this year in the Investor Summit on UCITS and Managed Accounts. UCITS have gained unexpected support over recent years as the strength of their passporting characteristics has gained and the breadth of fields in which they can investment has widened.

Kidane heads a six member team at Pictet, responsible for selecting best in breed managers across all asset classes and catering to Pictet Wealth Management globally. The team also picks managers for all the sub-advisory agreements for Pictet funds. Kidane also manages a US$ 420 m absolute return fund of funds. He is speaking at GAIM International 2010 on how asset allocators can utilise UCITS.

“For me, coming from a traditional background, UCITS is familiar ground in terms of the legislation and the constraints” he says. “We know what to expect from these types of products.”

The ability to use alternatives within a regulated vehicle is very attractive to Kidane. “With the new UCITS, we are bringing a talent base which is not familiar to long term long only investors” he says. “The attraction is that it brings a wealth of talent into a more regulated environment.” Read more »

Post Under: Asset Allocation

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