Posts Tagged “Institutional investors”

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

Global institutional investors reveal desires

June 16, 2020

In a lively satellite link from Greenwich, Rodger Smith of Greenwich Associates reported the findings of a research project across 2,500 large global institutional investors. The principal findings were that going forward the number of hedge funds would be reduced, regulation would get tighter, there would be greater transparency and changes in the fee structure. Needs, highlighted by the market meltdown, were those old favourites liquidity, transparency and risk.

Rodger Smith, will be speaking at GAIM International 2010; 14 - 17 June in Monaco

The global market size under consideration is US $ 25 trillion and in that institutional hedge fund assets amounted to between US $ 425 and US $ 450 billion. Institutional managers had high expectations of returns from hedge fund managers and in the UK more than in Europe, institutional managers were significantly increasing their investment in hedge funds, while Europe had gone slightly cooler. In the US, the institutional allocation to hedge funds has roughly doubled from 2005 to 2009. And looking forward, significant growth is expected in the US. Greenwich also polled the managers on their selection criteria when interviewing hedge fund managers and what came out as number one concern was a clear and consistent investment philosophy while in the UK, managers mostly liked to see evidence of capabilities of professional managment of investments.

Smith emphasised that the competitive edge lies in good service with the best in class service characteristics of a strong internal culture, service objective, communication philosophy and service professionals featuring strongly. Smith pointed out that there is an increased demand for client service and in his opinion most hedge funds are under invested in client servicing. “Investors hold the power and what lies behind the numbers is equally important” he said.

Are fund of funds finished?

June 15, 2020

The expert faculty discussion on the reinvention of the value proposition of funds of funds in a post-Madoff world seemed to conclude that funds of funds are alive, but only gently kicking, after an exhausting round with redemptive investors. Moderator Kenneth Phillips of Hedgemark International reported surprise at the amount of redemptions that came through in the crisis. “What drove them to redeem?” he asked. Nicholas Hannan of Oakley Alternative Investment Management puts it down to a loss of confidence in a business that they thought wouldn’t lose them money in a global crisis. “It was a fundamental disappointment” he said. Stephen Oxley of Paamco found that the largest part of redemptions came from private investors. “We didn’t experience so many redemptions because our institutional investors understood what they were seeing.” Cedric Kohler of Lombard Odier agrees. “Investors who were late to these types of investments had never redeemed or gone through the redemption process before. Amaranth, LTCM were on their minds so there was a big rush to get out.” Stephen Oxley believes funds of funds had essentially been mis-sold and Roberto Guiffrida from Permal pointed out that many private banks had allowed investors leverage on top of hedge fund of fund portfolios and that in addition structured products added to total leverage - all of which exacerbated the final crisis. Going forward, funds of funds are determined to deliver what investors want although they may change their name - manager of managers anyone?

Post Under: Asset Management

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.

Hedge Fund Industry Dynamics and Consolidation Trends

May 24, 2020

An Article by Kerry Stirton, Red Mountain Capital Partners.

Kerry Stirton will be speaking at GAIM International 14 - 17 June 2020 in Monaco

Most of the fundamental drivers of growth in the alternative investment sector over the past ten years have largely been maintained, or in some instances accentuated: more strategic choices for allocators, talented investment managers and traders, superior investment performance, somewhat better correlation features, and more aligned incentives. Excessive media attention to the odd renegade fund has not disrupted these core features. Institutional investors have continued to increase their allocations to hedge funds on the back of these attributes, and intend to increase them further in the future. However, alpha-generation and liquidity demands have become more important drivers in many instances.

This said, industry features are changing in significant ways. Conditions will become more challenging for most alternative funds as markets evolve and institutional investors become more demanding. Outperformance will become more difficult to achieve in increasingly competitive markets. Fees will continue to be pressured and will be more performance-based. More distinctive strategies, and more integrated investment skills, will become critical components of success. Firms with tight alignment of incentives between themselves and their investors will fare better. With the demand side having sharpened its game, winners on the supply side now have to be smarter and more principled than ever to attract their share of capital. Read more »

Post Under: Asset Management

Investor Research - Client Concerns & Distribution Strategies

May 19, 2020

An Article by Rodger Smith, Managing Director, Greenwich Associates.

Rodger Smith, will be speaking at GAIM International, 14-17 June 2020 in Monaco

The global financial crisis has brought a series of transformational changes to the hedge fund industry.  In a recent survey conducted by Ernst & Young and my firm, Greenwich Associates, hedge fund managers cited a host of developments that are altering the structure of their industry.  Among these changes were consolidation and a reduction in the number of active hedge funds, new and stricter regulations and movement in fee structures. Also near the top of the list were demands for increased levels of transparency — demands that will ultimately require hedge funds interested in competing for institutional assets to ramp up their investments the often-overlooked function of client service.

Despite the industry’s current state of flux, global demand for hedge fund investments is on the rise among institutions. Institutions around the world have invested between $425 billion and $450 billion in hedge funds, a figure driven by the approximately $240 billion invested in hedge funds by institutions in the United States and $80 billion from institutions in continental Europe.  Although institutions in continental Europe have become more skeptical about hedge fund investments since the start of the crisis, this hesitancy has been more than offset by the continued enthusiasm among institutions in the United Kingdom and the United States, which are in the process of increasing hedge fund allocations beyond pre-crisis levels. Read more »

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