January 2006
« December 2005 | Main | February 2006 »
January 13, 2006
Investment manager's global predictions for 2006
Investment managers expect 2006 equity performance in the major markets to lag behind the double-digit returns of 2005, according to a global Mercer survey.
Managers also anticipate a particularly sharp decline in the outlook for emerging markets, according to Mercer Investment Consulting’s annual Fearless Forecast survey.
Investment managers from 157 firms worldwide, which have more than USD 20 trillion in assets under management, participated in this year’s Fearless Forecast, an established, highly-regarded survey of economic and capital market expectations for the year ahead. The investment managers, based in Europe, North America and Asia Pacific, were asked for their global and regional views on the economy and capital markets for 2006.
Global equity markets will achieve a median 7.6 per cent* return in 2006, the global investment managers in the Mercer survey predicted, which compares to a 9.5 per cent return for the MSCI World IndexSM in 2005 and annualised historical returns for the past three years of 19.3 per cent.
Global investment managers in Mercer’s survey expect the MSCI UK IndexSM to achieve a median return of 7.7 per cent in 2006, approximating the 7.4 per cent return in 2005.
UK investment managers surveyed forecast real GDP growth for the UK of 2.1 per cent, trailing projected global GDP growth of 3.1 per cent.
Global investment managers surveyed forecast a median return of 8.0 per cent in 2006 for the MSCI EAFE. (Europe/Australasia/Far East) Index, which compares with a 13.5 per cent return posted in 2005. However, there was wide variation in the predictions, from 3.0 per cent to 13.2 per cent (at the fifth and 95th percentiles). Consistent with this wide range, investment managers in all regions surveyed expect more volatility in the equity markets in 2006 compared to 2005, particularly outside the US.
US equity performance is expected to improve in 2006, but only to move more closely in line with the performance of the developed markets of Europe, Australasia and the Far East. Survey respondents managing global assets expect the MSCI USA IndexSM to return 7.5 per cent in 2006, an improvement from the 5.1 per cent return in 2005.
Turning to developing markets, the global investment managers in Mercer s survey forecast a median return of 9.0 per cent in the MSCI Emerging Markets IndexSM in the coming year, sharply below the dramatic 34.0 per cent return achieved in 2005.
Bond market yields are expected to rise, delivering a median 4.0 per cent return for the broad global bond index. However, the majority of investment managers in the survey foresee a decline in the attractiveness of corporate bonds in 2006. The best performing bond markets in 2006 are expected to be in the UK, Australia, the US and New Zealand.
-HedgeWeek.com-
Posted by su at 10:14 AM | Comments (0)
January 10, 2006
Hedge fund strategies gained in '05
Most hedge fund strategies gained in 2005, with many managers beating benchmark equity indexes, according to data released Monday. But convertible-arbitrage funds lost money last year.
Most hedge funds tracked by Dow Jones posted positive returns. The Dow Jones index that tracks event-driven hedge funds, which trade around specific situations, gained 6.5% last year, topping the 6.4% rise in the Dow Jones Wilshire 5000 index.
The distressed-securities hedge fund index also beat the DJ Wilshire 5000, gaining 6.48%, Dow Jones added. Distressed-securities funds trade the debt and stock of companies entering, emerging from or operating under bankruptcy protection from creditors.
Two other hedge fund index providers confirmed that the industry outperformed the stock market, despite a tough year of scandals and increase competition for trading ideas.
An index maintained by Hedge Fund Research climbed 9.2% in 2005, while the Greenwich-Van Global Hedge Fund Index advanced an estimated 8.3%. That topped the returns of U.S. equity benchmarks such as the Standard & Poor's 500 Index and the Nasdaq Composite, which rose 4.9% and 1.4% respectively, according to Greenwich-Van Global.
"I'm still a big fan of hedge funds. That fact that returns are down somewhat from previous years isn't necessarily a bad thing," Vladimir Belinsky, president of Hermitage Advisors Ltd., which advises wealthy individuals, endowments and foundations on investments including hedge funds.
"It didn't take much to beat the major indexes this year, but returns a bit like equity benchmarks with less volatility is great for the institutions that are pouring money into the industry," he added.
Still, some hedge fund strategies lagged behind broader stock market indexes such as the DJ Wilshire 5000.
Equity long-short managers tracked by Dow Jones gained 3.1%, merger-arbitrage funds advanced 2.9% and equity market neutral funds climbed 1.7%.
Convertible-arbitrage hedge funds were the only strategy to lose money in 2005, Dow Jones said.
Hedge-fund returns have dwindled in recent years, partly because a surge in the number of fund managers has left lots of funds chasing a finite number of investment ideas. Convertible-arbitrage funds have experienced this problem more acutely than other strategies.
More than 70% of trading in the convertible-arb sector is driven by hedge funds that seek to exploit the spreads between the price of convertible securities and their underlying stock, according to a Credit Suisse First Boston estimate in March.
Convertible arbitrage managers tracked by HFR lost 1.6% on average in 2005.
Poor returns and crowded markets prompted several convertible-arb funds to shut down in 2005, with Marin Capital Partners being the most high-profile closure.
-Market Watch-
Posted by su at 2:12 PM | Comments (0)
January 9, 2006
Hedge fund transparency increasing, according to Strategic Financial Solutions LLC 2005 hedge fund database study
Strategic Financial Solutions, LLC, the PerTrac Desktop Analytical Platform, has announced the aggregate results of the 2005 SFS Hedge Fund Database Study, an annual report that aims to shed additional light on the hedge fund industry.
One of the most interesting findings of the 2005 Hedge Fund Database Study was that, after combining all 12 databases and integrating the funds identified in the 2004 study, there were nearly 41,000 records across all databases, a jump of more than 16,000 hedge fund entries from last year. While clearly there has been healthy growth in the hedge fund universe since our last report, these numbers indicate great effort and improvement in fund data collection on the part of hedge fund databases. In fact, looking only at funds with start dates between 1990 and 2003 and adjusting for duplicate records, we saw an increase of approximately 870 single manager hedge funds and 630 funds of hedge funds, for a net increase of 1,500 funds. Indeed, it is safe to say that the quantity of hedge fund data available to investors increased dramatically in 2005, although, as we found in prior years’ studies, in order to get more complete hedge fund coverage, it is imperative to subscribe to more than one database.
The study examined the hedge fund listings from twelve of the major hedge fund databases, including Alternative Asset Center, Altvest from InvestorForce, Barclay’s Global HedgeSource, CISDM, Cogenthedge, Eurekahedge Asian Hedge Fund Database, Eurekahedge European Hedge Fund Database, Eurekahedge Fund of Hedge Funds Database, HedgeFund.net from Channel Capital Group, Hedge Fund Research, Lipper/TASS and the MSCI Hedge Fund Indices(SM). The SFS study tagged duplicate funds, CTAs, funds of funds and clone funds using various analytical and statistical methods, and the data was manipulated in a number of ways to yield aggregate information on the hedge fund universe.
Key findings of the 2005 SFS Hedge Fund Database Study included:
- There were approximately 12,250 hedge funds and funds of hedge funds in the various hedge fund databases once duplicate funds were removed and the records combined, compared and integrated with the 2004 study results.
- Nearly 10,500 of these funds reported performance data in 2005, revealing that nearly 2,000 funds ceased reporting to hedge fund databases since the 2004 study.
- More than 8,100 single manager hedge funds were identified, as well as approximately 4,150 funds of hedge funds.
- Nearly 3,500 fund managers (general partners) were counted. This compares with nearly 4,300 Registered Investment Advisors who have indicated to the SEC that they or an affiliate manage a private investment fund, demonstrating that while not all hedge funds are yet being captured by hedge fund databases, a significant percentage are represented.
- Of the single manager hedge funds, more than 6,900 have reported performance in 2005. In addition, there were roughly 3,550 onshore funds and 4,550 offshore funds. Approximately 2,900 onshore funds and 4,000 offshore funds have reported performance in 2005.
Approximately 2,300 of the single manager funds appear to be ‘clones’ to another fund, meaning that they trade pari passu, either as offshore funds, super-accredited (3(c)7) funds or separate currency share classes of a single fund strategy. Single manager funds in the databases account for nearly $1.35 trillion under management, and more than 250 funds have surpassed the $1 billion mark. However, the vast majority of funds continue to manage less than $25 million.
There were approximately 4,150 funds of hedge funds (FOFs) that appeared in the SFS study, and roughly 3,600 had reported performance numbers in 2005. These totals include close to 950 US-domiciled funds and 3,200 offshore domiciled funds, with approximately 825 onshore and 2,775 offshore funds reporting performance in 2005. There appears to be about $700 billion invested into hedge funds through fund of hedge fund vehicles, although, like single manager funds, the majority of FOFs manage less than $25 million.
In addition to the single manager funds and funds of hedge funds included, there are 1,300 Commodity Trading Advisors (CTAs) and managed futures funds within the participant databases. These CTAs and futures funds manage approximately $152 billion in funds and separate accounts.
As with prior years’ studies, significant overlap between the various databases was noted. However, despite overlap and despite growth by every database in the study, it remains true that very few hedge funds and fund of hedge funds report to more than two or three databases, and no fund reports to all twelve databases. In fact, we once again found that a significant number of hedge funds and funds of hedge funds, more than 3,900 in the twelve-database sample, appeared only in a single database.
In fact, general databases (covering all geographic areas and all strategies), averaged more than 550 “exclusive” funds each. Specialty databases, covering only funds of hedge funds, Asian or European hedge funds, each contained an average of nearly 100 “exclusive” funds. This underscores one of the findings from prior SFS hedge fund database studies: serious investors need multiple data sources for their hedge fund screening and analysis.
The number of new funds launches for both single manager hedge funds and funds of hedge funds continues to grow. New fund launches increased in both 2003 and 2004, and 2005 appears to be on track for a record-breaking year as well. In addition, the hedge fund databases are doing an increasingly better job of capturing funds.
-PRWeb.com-
Posted by su at 11:08 AM | Comments (0)
Hedge funds still outperforming
Hedge fund performance last year was less than stellar, but managers, in the aggregate, were still able to outperform the broad market averages. That's what they're paid for -- although those pay packages will leave investors with less.
The CSFB/Tremont Hedge Fund Index, a broad measure of hedge fund return, shows an estimated overall gain of 6.6% in 2005. That's better than the 3% return posted by the S&P 500 before dividends.
Another pan-strategy gauge, the MSCI Hedge Invest Index, showed a less-flattering 4.7% annual return. (Numbers vary among indices because each uses a different subset of funds and managers.)
Among strategies, funds exposed to global markets did better than those having a long exposure to the U.S. stock market. As a result, the two best-performing strategies were dedicated short-selling and emerging markets, said Oliver Schupp, president of CSFB/Tremont Index. Dedicated short-sellers, or funds where at least 80% of the positions are short, returned 17% last year. "Most managers focus on U.S. stocks, and with the U.S. market not having a great year, there were plenty of opportunities to profit on the short side," Schupp said.
Emerging-market managers also posted a 17% return, benefiting from the bull market in Asia and strong results in Eastern Europe and Latin America.
But while those two strategies did best, they are relatively small in terms of what they represent in the hedge fund universe: short-sellers make for less than 1% of the assets under management, and emerging markets 5%. The big strategies are long/short equity (28%), event-driven (23%) and global macro (12%), says Schupp.
So-called long/short managers, who take long and short stock positions, posted a 8.6% return, but the bulk of the returns came from those with an exposure to Japan (up 40%) and to Europe (up 20%), according to CSFB/Tremont.
Posted by su at 10:58 AM | Comments (0)
January 3, 2006
Hedge funds become more accessible
Hedge funds, previously unconstrained investment vehicles for risk-takers and the super rich, are becoming an institutionalised part of the mainstream asset management industry as pension and insurance funds bump up their allocations to these funds.
The profile of hedge fund investors is shifting towards institutional funds on the hunt for higher returns, according to a survey of more than 70 UK hedge fund managers by Kinetic, an investment management consultancy.
David Butler, founding member of Kinetic, said: "More new money is coming from institutions than elsewhere and they are allocating significant sums to hedge funds. The era of the high net worth investor is fading as institutions become the main investors."
Institutions on average make up between 10 and 35 per cent of investors in any one fund, said Butler, but managers expect that proportion to increase to at least 25 per cent in the next year and then gradually supplant the money invested by fund of funds and private investors.
The survey suggested that as the investor profile changes, hedge funds themselves will become more institutionalised, spending more money on IT, compliance and trading platforms to meet demands from institutional investors for more risk-management infrastructure. A number of hedge fund houses have created a new post of "chief risk officer".
Respondents said competition to recruit talented individuals was also forcing up costs. Kinetic said: "These factors are believed to be the principal inhibitors of growth."
Hedge fund managers said they expected the more aggressive fee structures found in the US, for example 3 per cent annual management fees and 30 per cent performance fees, would spread to the UK but there would be some resistance from investors.
Rising costs are making it increasingly tough for small hedge fund managers, said Kinetic, which interviewed 20 leading hedge fund management houses including Man Group, Vega Asset Management, Marshall Wace and Gartmore.
The majority of respondents noted that large hedge fund managers with a track record are finding it increasingly easy to launch and raise money for new funds. However, small, new funds are finding the opposite.
The survey said that there was a general consensus that new funds had to reach $50 million to be commercial.
At the same time, more than half of respondents said that it was becoming increasingly hard to differentiate themselves from each other as competitors flooded into the market and returns reduced.
Kinetic Partners is a joint venture between Chiltern, a tax and wealth management firm, and former financial services partners from consultancy RSM Robson Rhodes.
-Gulfnews.com-
Posted by su at 11:49 AM | Comments (0)
Does size matter in the hedge fund industry?
It is often claimed that smaller hedge funds outperform their larger rivals and that funds perform best in their early years, but is this truly the case?
A large body of research in hedge fund databases shows that start-up funds outperform established funds in the first 18 months or so of their existence. Many industry experts also argue that smaller funds tend to be more aggressive than their rivals and thus produce higher returns, though there is less verifiable evidence to support this claim.
Database Bias
The problem is that most of these assertions are based on hedge fund databases and these do not provide a perfect insight into the industry.
For Example:
• Start-up hedge funds that do not perform do not earn performance fees and are thus more likely to fail, which means that underperforming start-ups drop out of the database;
• Following on from that, as reporting to the databases is voluntary, only hedge funds that can benefit (i.e. have the track record and need to raise assets) are going to sign up for an index — poor performers need not apply (this is known as reporting bias);
• Those funds that do decide to report to a database may use favorable early returns to "backfill" their historical performance. In their 2003 paper "A Reality Check on Hedge Fund Returns", Nolke Posthumay and Pieter Jelle van der Sluisz calculate that backfill bias may skew returns by a magnitude of as much as 4 percent.
• Additionally, hedge funds remain in the database because they want to attract fresh investment, so top performers will retire from the index when they close for fresh investment.
While many of these database flaws are excluded from the published indices that are based on them, they are often reflected in studies of the raw material that underpins those indices.
Scale
That goes some way to explaining difference in the performance figures for early and late stage hedge funds. Scale, however, is a separate issue. The databases do not provide a great deal of insight into the size of hedge funds as they tend to record returns over time. Most of the arguments for scale, therefore, are quantitative.
It has been argued that hedge funds have a critical mass beyond which they become less efficient. This is because trades, particularly on leveraged products, become so large that they are hard to implement and that assets are, by necessity, diffused over a wider number of instruments. Larger funds are also thought to be more conservative, as they are usually not seeking additional assets so the managers are intuitively more risk averse. On the other hand, managers with fewer assets are, in theory, eager to impress potential investors and therefore more focused on total returns.
Variations by Style
These scale arguments tend to carry more weight in less liquid markets and are largely dependent on trading methodologies.
Managed futures funds, for example, trade in a very wide range of highly liquid markets and often use technology based trading systems to identify and act upon opportunities. As a result, scale is unlikely to make much difference as the opportunity set is enormous and a higher volume of trades does not require additional resources.
On the other hand, strategies that trade in illiquid markets or are highly reliant on the participation of the manager, such as leveraged finance, may well benefit from being smaller.
Big Can Be an Advantage
There are also disadvantages to small or new funds. The vast majority of funds that fail do so in their first few years of operation, and many failed funds do so for operational reasons. One reason for this is because, due to their small scale, they are unable to generate sufficient fee income to support their operational needs.
Bigger funds, by comparison, generate the revenues needed to survive and are frequently in a position to differentiate themselves through improved customer service. Older funds are also arguably wiser, having negotiated and resolved potential operational issues and developed the procedures and systems necessary to guarantee the continuation of their business — even after prime personnel, such as a founding partner, leave the business.
Conclusion
This does not mean that bigger or more developed funds are a better investment than smaller funds. Nor does the evidence support the opposite argument. In the final analysis, scale and state of development do not constitute suitably criteria for selecting a hedge fund. Investors should instead focus on the manager's experience, operational capabilities, risk management structure, and strategy. Scale will be influential in some styles, and years of operation do provide measurable performance criteria on which an investment can be based, but in the final analysis investors should focus on a manager's ability to deliver the returns they promise with the required level of volatility over the medium to long term.
-Antoine Massad, MENAFN.com-
(Antoine Massad is head of Middle East and Asia at Man Investments in Dubai.)
Posted by su at 11:29 AM | Comments (0)
CalPERS diversifies its hedge fund portfolio
The California Public Employees’ Retirement System, Sacramento, revamped its $2.1 billion hedge fund portfolio over the last 18 months to make it less directional and more diversified. The $200.2 billion fund also increased the target allocation range for hedge funds significantly, to as much as 5% of the plan’s global equities portfolio.
The changes in CalPERS’ hedge fund investments are the result of a systematic analysis of the plan’s risk-managed absolute return strategy, began by Christianna Wood, senior investment officer-global equities, when she joined CalPERS in June 2002. When Kurt Silberstein, portfolio manager-absolute return strategies, took over the program in January 2003, 70% of the system’s assets were invested with U.S. long-short equity managers; that’s been reduced to 30%, he said. The program now includes eight specific hedge fund strategies, Mr. Silberstein said: domestic equity long-short; international equity long-short; event-driven; multistrategy; distressed debt; fixed-income arbitrage; market neutral; and credit-driven.
- Advertisement -CalPERS’ staff will hire hedge funds-of-funds managers for non-U.S. investments next year, Ms. Wood said. Several firms have been identified for consideration, and the fund will select three firms in Asia and four to five in Europe and the U.K. to provide customized funds.
Posted by su at 9:54 AM | Comments (0)