March 2006
« February 2006 | Main | April 2006 »
March 31, 2006
FSA opens door for hedge fund floats
The Financial Services Authority has decided to relax the rules governing companies that want to list on the London Stock Exchange, paving the way for hedge funds with a wider range of investment strategies to list for the first time.
The proposed changes to the listing rules for "investment entities", published yesterday, replace an existing regime with a more principles-based approach to determine eligibility for listing.
The FSA said this would enable those employing a wider range of investment strategies, including those currently pursued by some hedge funds, to list in the UK.
In a speech yesterday, John Tiner, chief executive of the FSA, said there are nearly 430 such entities, worth £66bn, listed in London. He stressed the relaxing of the rules would maintain "an appropriate level of protection for investors", adding: "Such funds would still need to comply with the full set of listing rules, including the eligibility and ongoing disclosure requirements aimed at protecting investors." Mr Tiner added: "We recognise that the market and the investors have moved on in the past few years and we believe that it is important that the regulatory regime acknowledges that."
The changes will bring London into line with the European Union's transparency directive which is designed to enhance transparency across the EU's capital markets by ensuring that the information requirements for individual markets are the same.
Hector Sants, the FSA's managing director of wholesale business, added: "We are asking market participants whether we should implement the directive's minimum requirements or if we should retain key features of the existing UK regime for financial reporting and shareholding disclosures, which currently go beyond the directive's requirements."
-Telegraph-
Posted by su at 3:23 PM | Comments (0)
Alternative investments are a “permanent fixture” in institutional portfolios: Growing appetite for separating alpha and beta returns
Gary Enos, executive vice president and head of State Street’s alternative investment servicing business, said: “All signs indicate that what began as a niche category catering mainly to high-net worth individuals and US endowments and foundations has become a permanent fixture within a broader set of institutional portfolios,”
He added: “Satisfied customers go a long way towards explaining the industry’s proliferation. Our study reveals hedge funds are meeting institutional investors’ expectations with an astounding 100 per cent satisfaction rate in achieving portfolio diversification as well as high marks for lowering portfolio volatility and increasing absolute return.”
State Street Corporation’s second institutional investor hedge fund study was released yesterday. State Street conducted the study late last year in conjunction with the 2005 Global Absolute Return Congress (Global ARC). Survey respondents included global corporate pensions (18 per cent), public and government pensions (42 per cent) and endowments and foundations (40 per cent) with investable assets totaling more than USD 1 trillion.
According to the study, most investment boards and trustees of institutions (81 percent) have become more comfortable with investing in hedge funds in the past year, and the majority (52 per cent) of these governing bodies spend 15 per cent or more of their time discussing alternative investments. The survey also found that most institutions intend to add new hedge fund and private equity managers to their current manager line-up in the coming year.
Shift away from mainstream investments
This year’s survey shows a marked shift away from mainstream investments. Of the institutions who indicated they were making increased allocations to hedge funds, 45% were allocating away from active equities, 35% from passive equities, 5% from active bonds, 10% from passive bonds, and, interestingly, 5% from commodities.
On the private equity front, 59% were allocating away from active equities, 22% from passive equities, 5% from active bonds, 5% from passive bonds, and 9% from hedge funds, funds of hedge funds, or hedge funds indices.
Increase in Hedge Fund and Private Equity Allocations
According to the State Street study, nearly half (48 per cent) of respondents have 5 per cent or more of their portfolios invested in hedge funds today. Of this figure, most (44 per cent) have 10 per cent or more invested in hedge funds. This represents an increase over 2004, when only 35 per cent of institutions said they had 10 per cent or more invested in hedge funds.
For the first time, State Street also surveyed respondents about the role of private equity in their portfolios. Ninety per cent of respondents allocate to private equity. Nearly half (47 per cent) allocated 5 per cent or more to this strategy. Nineteen per cent said they allocate 10 percent or more.
Adding Alternative Investment Managers
Institutional investors who participated in State Street’s study also indicated that they have plans to hire new alternative investment managers in the coming year. Eighty-six per cent of respondents said they plan to add new hedge fund managers to their current line-up, while 67 per cent said their hiring plans included new private equity managers.
Separating “Alpha” and “Beta” Returns
The results of State Street’s study also illustrate institutional investors’ growing appetite for separating asset class returns, or beta, and absolute returns, or alpha. By disaggregating risk into “alpha” and “beta” strategies, institutions can better tailor portfolios to fit their specific investment objectives. Eighty-one per cent of survey respondents said they engaged new managers for both alpha and beta returns, and a majority (59 per cent) said they were able to differentiate between a given manager’s “alpha” and “beta” results. Among those who said they could not differentiate (41 percent), an overwhelming majority (82 per cent) attributed this inability to a lack of tools and/or resources.
“As investors become more aware of the benefits of separating alpha and beta, asset managers who can provide a wide range of beta exposures and interchangeable alpha sources are uniquely positioned,” said Jane Tisdale, managing director of hedge fund strategies for State Street Global Advisors, the investment management arm of State Street Corporation. “Access to customizable resources such as alpha porting techniques offer increased transparency in measuring and rewarding performance and allow the flexibility to increase portfolio diversification with a low tracking error.”
The survey also confirms the trend in the US market towards the MAC (Mutli asset class) investing approach. Early this week in the UK, leading pension consultant Roger Urwin at Watson Wyatt called for a new approach to UK pension fund investing, away from a concentration in equities and towards broadly diversified portfolios.
-HedgeWeek.com-
Posted by su at 3:20 PM | Comments (0)
March 27, 2006
UK university fund firm eyes alternative assets
A new company set up to manage the endowments of British university colleges and charities said on Monday it will invest in assets such as private equity and commodites which have helped U.S. universities to achieve strong returns.
Oxford Investment Management (OXIM) is starting with 100 million pounds of funds committed by three Oxford University colleges, Balliol, Christ Church and St Catherine's.
Later it will seek business too from other colleges, charities and wealthy individuals.
OXIM's approach to asset allocation will be similar to that of some U.S. endowments, which have larger allocations to non-traditional assets such as hedge funds, private equity, timber and energy than their British counterparts have.
"While some ... U.S. (charities and endowments) have enjoyed impressive returns on their investments in recent years through diversified active management, UK institutions have largely pursued ... more traditional strategies," OXIM director Karl Sternberg said in a statement.
The endowments of Harvard and Yale have performed particularly well. Harvard Management Company, which invests Harvard University's $26 billion (15 billion pound) endowment, delivered a return of 19.2 percent for the year ended June 2005.
OXIM plans to invest around one third of assets in stocks. It will also invest in infrastructure, property, private equity and long/short equity funds, which buy stocks seen as cheap and short sell those that look expensive.
The firm is 60 percent owned by Balliol, Christ Church and St Catherine's colleges and 40 percent by the management team, which includes Sternberg and Paul Berriman, respectively former chief investment officer and UK chief executive at Deutsche Asset Managment.
Gavyn Davies, former chief economist at Goldman Sachs and chairman of the British Broadcasting Corporation, will be a special investment adviser to the firm's investment committee.
Sternberg, who managed St Catherine's College's assets for 10 years whilst at Deutsche, and Berriman will aim to generate returns of 5 percent above the rate of inflation per annum over a rolling five-year period, with significantly less volatility than stocks.
They have so far selected 17 external fund managers.
The firm will charge annual management fees of 30 basis points this year, which will rise to 40 basis points for new clients who join next year, the spokesman said.
Separately, in an effort to boost returns, former Treasury economist Sir Alan Budd has been commissioned to prepare a report on how Oxford University manages its investments.
-Reuters-
Posted by su at 10:12 AM | Comments (0)
FSA publishes feedback on hedge fund risks
The UK’s Financial Services Authority says that hedge funds are an important part of the financial system, although it plans to enhance its supervisory focus in a couple of areas.
The FSA published its feedback on a discussion paper, which looked at the impact of hedge funds on the UK’s wholesale market. It notes that the FSA continues to view hedge funds as an important part of the financial services system providing a major source of liquidity and enhancing market efficiency.
However, the regulator says that in order to increase its understanding of the activities of hedge fund managers, it wants firms to identify their prime broker, third party administrator and the fund auditor in the reports they send to the FSA. It also plans to increase scrutiny of asset valuations, and possible preferential treatment of certain fund clients.
In terms of valuations, it says, “Hedge fund managers may be exposed to conflicts of interest as their remuneration is based on performance and assets under management. This may create an incentive to overstate the valuations it provides to administrators, who may not be able to challenge them.” It notes that regulatory visits are currently being carried out in this area and the findings will be known in the third quarter this year. Also, the FSA has also sponsored an IOSCO project on valuing complex and illiquid assets in hedge funds.
The regulator also warns that, “Failure by hedge fund managers to disclose that side letters have been granted to certain clients may result in some investors receiving more information and preferential treatment to other investors in the same share class. The FSA expects managers to ensure that all investors understand that a side letter has been granted and that conflicts may arise.”
In a separate notice, the FSA also says that it will consider extending the range of retail investment products that are available, including authorized funds of hedge funds. The FSA plans to consult next year on widening the range of funds that can be marketed to retail investors to include new authorized funds of hedge funds. “This would enable retail investors, who are already gaining access to products with hedge-fund investment characteristics through a variety of means, to invest in products that would be subject to the FSA’s regime for authorised collective investment schemes,” it explains.
“The funds would be subject to structural and operational safeguards including the requirement to have an independent depositary. In addition, the fund of hedge funds managers will not be able to invest into all hedge funds – there will be liquidity criteria, for example, in respect of the underlying funds. This should enhance investor protection whilst allowing increased investor choice,” it adds.
"Retail investors can currently gain access to products with hedge-fund investment characteristics through a variety of means, including listed funds of hedge funds, funds offered on the internet from European jurisdictions, structured products linked to hedge fund indices. Given the reality of the contemporary retail market, it seems sensible to permit the marketing of funds of hedge funds through an authorised, onshore vehicle,” says Clive Briault, FSA managing director for Retail Markets. “These onshore funds of funds would benefit from the protections already in place for authorised funds. We also need to consider how we can help consumers to understand the features and risks associated with these products.”
The discussion paper on retail investment products identified three risks to consumers posed by the current suite of retail investment products. These were: lack of consumer understanding of newer products; confusion over the sales and distribution channels used; and possible detriment caused by marketing prohibitions on certain unregulated funds.
In addition to consulting on a possible extension of the range of authorised collective investment schemes the FSA proposes to focus on two additional areas of relevance to the wider range of investment products currently in the market: consumer education and awareness and product provider accountability.
The FSA will reinforce its existing consumer information and awareness work, stressing the increasing need for consumers to invest proportionately across a range of products, to read the disclosure material they receive, and to seek financial advice when necessary. And, it will examine the role that product providers and distributors play in ensuring customers are treated fairly, primarily through the provision and use of product information.
-investment executive-
Posted by su at 9:58 AM | Comments (0)
UK FSA: Funds of hedge funds fit for UK retail investors
Following a year-long review, the FSA has concluded that funds of hedge funds are appropriate financial investments for the UK retail investment market.
The Financial Services Authority (FSA) yesterday issued two separate Feedback Statements on its previous discussion papers looking at hedge fund investing in the UK – DP05/3, “Wider-range Retail Investment Products” and DP05/4 “Hedge funds: A discussion of risk and regulatory engagement”.
In its discussion paper on retail investment products, the FSA concluded that funds of hedge funds are appropriate financial investments for the UK retail investment market.
The FSA said it would to consult next year on widening the range of funds that can be marketed to retail investors to include new authorised funds of hedge funds.
This would enable retail investors, who are already gaining access to products with hedge-fund investment characteristics through a variety of means, to invest in products that would be subject to the FSA's regime for authorised collective investment schemes.
The funds would be subject to structural and operational safeguards including the requirement to have an independent depositary. In addition, the fund of hedge funds managers will not be able to invest into all hedge funds – there will be liquidity criteria, for example, in respect of the underlying funds. This should enhance investor protection whilst allowing increased investor choice.
Clive Briault, FSA Managing Director for Retail Markets, said: "Retail investors can currently gain access to products with hedge-fund investment characteristics through a variety of means, including listed funds of hedge funds, funds offered on the internet from European jurisdictions, structured products linked to hedge fund indices and funds under the UCITS III (Undertakings for Collective Investments in Transferable Securities) Directive.
"Given the reality of the contemporary retail market, it seems sensible to permit the marketing of funds of hedge funds through an authorised, onshore vehicle. These onshore funds of funds would benefit from the protections already in place for authorised funds.
"We also need to consider how we can help consumers to understand the features and risks associated with these products. Our consultation will also address these important issues."
The discussion paper on retail investment products identified three risks to consumers posed by the current suite of retail investment products. These were: lack of consumer understanding of newer products; confusion over the sales and distribution channels used; and possible detriment caused by marketing prohibitions on certain unregulated funds.
AIMA welcomes FSA’s recommendations
The London-based Alternative Investment Management Association (AIMA), the global hedge fund and alternative investment industry association, welcomed the FSA’s recommendation to allow UK retail investors to invest in funds of hedge funds.
It stated: “Funds of hedge funds invest in single manager hedge funds. One of AIMA’s primary goals is to educate the investment market on hedge funds. In this instance AIMA agrees with the FSA that fund of hedge fund managers are best qualified to select the most appropriate hedge funds for retail investors”.
Florence Lombard, Executive Director at AIMA, said: “There is a common will shared by the industry and the FSA to optimise the investment environment for investors. The FSA has correctly concluded that retail investors should be given the opportunity to invest in market leading investment products that can deliver absolute return performance in all markets.”
Over the last number of years hedge funds have become increasingly mainstream with institutional strength controls and governance. AIMA has been encouraging the distribution of funds of hedge funds since the FSA’s original DP16 hedge fund discussion paper in 2002. These funds are already marketed to retail investors in other European countries including France, Germany, Italy and Spain.
AIMA also welcomed the FSA’s statement in its discussion paper on risk and regulatory engagement – DP05/4 - that hedge funds enhance market efficiency, increase liquidity, and that the FSA is committed to ensuring the UK remains an attractive place for hedge fund managers. The number of hedge funds managed in London has more than doubled between 2002 and 2005 and now represent 20% of the worldwide industry.
Lombard added: “We are pleased that the FSA has acknowledged the growing importance of an industry which now manages more than USD 1.5 trillion in assets worldwide. Over the last few years hedge funds have been at the forefront of the development of the investment management industry, as managers seek new and innovative ways of generating returns for investors”.
The FSA’s recommendations on regulation of hedge funds in the UK
Commenting on the FSA’s feedback on DP05/4 - “Hedge funds: A discussion of risk and regulatory engagement”, Hector Sants, FSA Managing Director of Wholesale Business, said: "We continue to view hedge funds as a vital segment of the financial services industry. In particular they play a fundamental role in the efficient reallocation of capital and risk, and remain an important source of liquidity and innovation in today's markets.
"We are pleased that both the formal responses and our wider discussions confirmed that the risks we had identified from hedge funds to our objectives were the correct ones. As we have previously made clear our response is only a modest change in our regulatory approach.
"There are two principal areas of focus to our current supervisory work. Firstly, we will seek additional information from the hedge fund managers we regulate to enhance our understanding of their activities, which will better inform our supervisory approach. Secondly, we continue to urge firms to focus on the risks posed by asset valuations and side letters, which will remain an area of supervisory focus."
The FSA continues to view hedge funds as an important part of the financial services system providing a major source of liquidity and enhancing market efficiency. In DP05/4 the FSA identified what it saw as the risks posed to its objectives by hedge funds and outlined the steps it had taken to mitigate them and a number of further ways in which it could address those risks.
Additional FSA questions for hedge fund managers
In order to increase its understanding of the activities of those asset managers using hedge fund techniques, the FSA proposes to include additional questions to identify the firm's prime broker, third party administrator and the fund auditor in the Integrated Regulatory Returns that firms send to the FSA.
Additionally, two specific areas are the subject of supervisory focus. These are:
Asset Valuations: hedge fund managers may be exposed to conflicts of interest as their remuneration is based on performance and assets under management. This may create an incentive to overstate the valuations it provides to administrators, who may not be able to challenge them. Themed visits are currently being carried out in this area and the findings will be known in the third quarter this year. The FSA has also sponsored an IOSCO project on valuing complex and illiquid assets in hedge funds; and,
Side Letters: the failure by hedge fund managers to disclose that side letters have been granted to certain clients may result in some investors receiving more information and preferential treatment to other investors in the same share class. The FSA expects managers to ensure that all investors understand that a side letter has been granted and that conflicts may arise.
AIMA stated that it was pleased that “the FSA is leading coordination of IOSCO’s work on asset pricing for the hedge fund industry, to create principles-based guidelines. The FSA refers to a specific company that has withdrawn from the industry following fund over-valuation - not a member of AIMA”. The FSA stated that it will “look to build on the work on good practice that has already been undertaken through trade bodies such as AIMA”.
This refers to AIMA’s ‘Asset Pricing and Fund Valuation Practices in the Hedge Fund Industry’ April 2005 study, which puts forward 20 recommendations covering governance, transparency, procedures and pricing models. The second phase of work in this area is already underway and AIMA has recently established a global working group comprising hedge fund managers, administrators, investors and leading pricing specialists.
This issue of ‘side letters’ was identified by AIMA last year and an industry working group was established in October 2005, which is examining means of reducing the use of side letters – potentially by moving common issues into the fund’s documentation.
-hedgeweek.com-
Posted by su at 9:51 AM | Comments (0)
March 23, 2006
Pension fund allocation to hedge funds continues to grow
A new Mercer survey shows the use of alternative investments continues to increase, in particular active management or so-called ‘alpha’ strategies.
The preliminary findings of the new survey by Mercer Investment Consulting show:
-Allocation to bonds remains at 35% while exposure to equities drops 1% to 62% since last year
-7% of schemes invest in hedge funds and the same for active currency
-One in ten schemes is likely to consider introducing a liability-benchmarked investment strategy in 2006.
Alternative investment strategies
The survey shows the use of alternative investments continues to increase, in particular active management or so-called ‘alpha’ strategies. On average, 7% of schemes now invest in hedge funds and 7% employ an active currency manager. For larger schemes, the figures increase further, with almost 10% investing in hedge funds and around 15% using an active currency manager.
Green commented: "Investment in alternative assets such as hedge funds and active currency is likely to increase further this year, as trustees have become more comfortable with these strategies as a way to diversify risk and enhance performance."
The survey of over 425 UK defined benefit pension schemes with more than GBP 177bn in assets reveals that the average allocation to bonds has increased by just four percentage points in the last three years.
At the same time, pension funds are maturing and the proportion of schemes open to new entrants has fallen to 39% from 42% last year.
Andy Green, Head of Investment Strategy at Mercer, commented: "While it may seem surprising that bond allocations have remained stable at a time when pension schemes are maturing, trustees are concerned about the level of current bond yields and are finding other investment markets more attractive."
The survey shows that the average allocation to equities has dropped only slightly - from 63% in 2005 to 62% this year. Investment in UK equities has decreased from 37% in 2005 to 35% this year, while allocations to overseas equities have risen by one percentage point to 27%.
"Though the UK equity market offers potentially higher dividend yields than other developed markets, stock concentration in the UK means returns are dominated by the performance of a few companies or sectors," Green commented. "Trustees are offsetting the effect of concentration by reducing their exposure to UK stocks and allocating more funds to international equity markets."
Eight per cent of funds have adopted a capped UK equity index benchmark, which limits exposure to the largest stocks, as an alternative way to offset the effect of stock concentration.
The trend towards investing in overseas equities has been supported by an increased use of currency hedging, from 14% of schemes in 2005 to 20% this year. On average, the proportion of currency risk that is hedged is 65%.
According to the survey, less than 4% of schemes still follow a discretionary peer group benchmark strategy. Two-thirds of assets (66%) are invested with active managers, while 34% are invested in track indices.
Liability-benchmarked mandates
The survey also identified that one in ten schemes (10%) is expected to consider introducing some form of cash-flow matching or liability-benchmarked strategy in 2006, either through physical bonds, swaps or liability-driven mandates.
"There is significant interest among pension schemes in managing interest rate risk through liability-benchmarked investment mandates. However, many schemes are finding the current price of long-dated bonds and their derivatives unattractive," said Green.
Mercer will be releasing the full results of its survey on pension fund liability and asset allocation in Europe in April.
-Hedge Week-
Posted by su at 2:54 PM | Comments (0)
March 20, 2006
Hedge funds laws to be relaxed
The City's financial watchdog will this week pave the way for hedge funds to be sold to small investors.
It is currently illegal to market hedge funds to ordinary investors in Britain, but the Financial Services Authority is expected to relax current restrictions when it finally publishes its recommendations on the future of the sector.
After a change of heart during the consultation exercise, which began last June, the watchdog is expected to announce that it will allow fund of hedge funds to be set up in the UK and marketed to ordinary investors.
However, these new onshore funds are expected to carry health warnings on their risks.
The news has been enthusiastically welcomed by the hedge fund industry which has grown rapidly to more than 8,000 funds managing more than £1 trillion around the globe.
HSBC Republic's Jamie Murray, part of the team managing 19 fund of hedge funds offshore, said: "It would be fantastic for fund of hedge funds to become available to small investors. So far they have only been available for wealthy individuals.
"But minimum investments in France, Ireland, Germany and Italy, all of which now allow funds of funds to be set up within their borders, have come down to levels affordable for small investors."
However, the watchdog has drawn the line at allowing hedge funds to be set up onshore, and the FSA will also not relax rules permitting these to be direct marketed.
And while the funds of hedge funds will be authorised and invest in an underlying spread of perhaps between 10 and 100 underlying investments, those underlying funds will continue to remain outside the regulatory framework
For this reason not everyone is enthusiastic. Severn Investment Management's Justin Urquhart Stewart points out: "You may be investing in a regulated product, but it in turn is investing in funds which are not regulated.
"Because there are so few controls, you cannot see clearly what is going on. You are still playing with a chemistry set which can blow up in your face."
-Business.scotsman.com-
Posted by su at 9:37 AM | Comments (0)
March 17, 2006
Cambridge college hires fund manager
Trinity College, Cambridge, has recruited a leading hedge fund manager to run its £700m endowment in the latest effort by Oxbridge to bring top-level expertise to its investment strategies.
Rory Landman, a former fund manger at Thames River Capital, will be elected to the fellowship of Cambridge's wealthiest college today and will take up the position of senior bursar on September 1.
Although bursorial salaries rarely exceed £50,000, both Oxford and Cambridge have been recruiting heavily from the ranks of top City executives who are attracted by the more relaxed pace of academic life. Both universities are struggling with funding shortfalls and want to extract greater returns from their endowments.
While the trend away from appointing former military men or academics to run the college funds has been on going since the early 1990s, hedge fund managers of the calibre of Mr Landman are still relatively rare in the senior common rooms. Trinity said his background did not mean it would move strongly into hedge funds, which currently only occupy a small part of a portfolio that is heavily skewed towards commercial property.
Canny investment by former Trinity bursars means two-thirds of the endowment is held in property, including the Cambridge Science Park and a major interest in the Port of Felixstowe, the large container port. The college could benefit from Mr Landman's expertise in emerging markets, which has been a big driver of growth for large US endowments such as Harvard and Yale. Mr Landman has amassed a 15-year track record of investing in emerging markets.
Jeremy Fairbrother, the outgoing bursar, described the position as a "wonderful job" and said he expected Mr Landman would want to make a complete review of the college's portfolio.
-Financial Times-
Posted by su at 9:02 AM | Comments (0)
March 16, 2006
Credit Suisse/Tremont Hedge Fund Index up 0.34% in Feb
The Credit Suisse/Tremont Hedge Fund Index is up 0.34% for February 2006, according to Oliver Schupp, President of the Credit Suisse/ Tremont Hedge Fund Index.
“January’s rising market trend in the US equity market stalled in February, and performance was almost unchanged,” said Oliver Schupp. “This limited the possibilities for Long/Short Managers to benefit from net long positions throughout the month. Emerging Market Managers profited with a 1.56% return for February thanks to well performing equity markets and higher valued local currencies. Convertible Arbitrage Managers were able to profit from the higher valuations, and gained 1.18% for the month.”
"Long/Short Equity Managers were well positioned in January, and despite a difficult market environment, gave very little back," said Robert I. Schulman, Chief Executive Officer of Tremont Capital Management, Inc. “The Global Macro Managers of the Index were up 1.23% in February, profiting from short positions in US bonds as continued GDP growth and inflation concerns left market participants expecting further interest rate hikes.”
-Hedgeco.net-
Posted by su at 11:06 AM | Comments (0)
Hedge funds storm to $1.5 trillion
The big stakes, big rewards hedge fund industry now manages more than $1,500bn of money worldwide, figures obtained by The Daily Telegraph reveal.
Hedge funds managed in Europe alone account for more than $300bn (£172bn) of investments, up almost 18pc in the past year.
Two thirds of European hedge funds are managed out of London, representing 12.5pc of the 8,000 worldwide.
The figures have been compiled by HedgeFund Intelligence, which publishes EuroHedge, the industry bible for the European hedge fund markets.
HFI's estimated figures, up from $1,000bn in 2004, will be finalised in the next issue of the magazine, but they were first revealed yesterday in Paris at an industry-leading summit organised by the magazine.
The jump in investment comes despite hedge funds losing favour in the past year as equity markets soared, and despite negative publicity from clampdowns on insider trading. Neil Wilson, managing editor, of HFI said: "The industry's been growing up. What used to be a small cottage industry on the side of the financial markets, is now much broader and a mainstream part of the market.
"A few years ago, hedge funds were largely the domain of high net worth investors. In the past year, a lot more institutional money has flowed in, including pension funds, endowment funds and corporate money."
The amount of funds under management by Europe's 1,500 hedge funds includes $28bn raised during 2005 as funds were launched by major players including Marshall Wace, Pelton Partners, and Fulcrum Asset Management.
Hedge funds, which were once regularly described as loosely regulated vehicles, have been increasingly investing in tighter risk management and compliance systems as the industry faces closer scrutiny from both the Financial Services Authority and America's Securities Exchange Commission.
This month GLG Partners was fined $750,000 by the FSA for alleged insider trading by its star hedge fund manager Philippe Jabre. The growth in hedge funds has been boosted by a growing number of institutional investors, such as pension funds and insurance companies.
However, they prefer to invest in hedge funds that offer lowers returns in exchange for more transparency and less performance volatility.
A spokesman for the Alternative Investment Management Association said: "The latest figures demonstrate the growing demand for hedge funds from the traditional investment community, and shows the increasing understanding and acceptance of this style of modern investment. She said: "Europe and the UK is showing itself to be at the forefront of the industry."
EuroHedge data showed that European funds had an average of 8.8pc performance growth during the year after funds under management doubled in 2003 and grew by 50pc in 2004.
That compared with 5.8pc performance growth on average for hedge funds managed out of the US, where there is now $850bn of money under control of the largest funds.
-Telegraph-
Posted by su at 11:01 AM | Comments (0)
March 14, 2006
Regulators take contrary views on hedge funds
There appears to be a diverging approach to the regulation and development of hedge funds as domestic regulators like the Hong Kong Securities and Futures Commission and the Financial Services Authority (FSA) in the UK are considering the retailisation of this popular financial product, and making it available to more consumers, while the international bodies such as IOSCO are lobbying for increasing oversight because of the reported perceived risks.
The Head of Investment and Securities at the Cayman Islands Monetary Authority (CIMA) said one of the reasons for this contradictory position is the varying definitions of hedge funds.
“I would suggest that before we as regulators and standard setters can conclude on whether further oversight of hedge funds is required it would be important to settle on a commonly accepted definition of hedge funds,” said Mr Linford.
“In the absence of such a definition it is difficult to see how the real or potential risks posed by the hedge funds can be properly identified and mitigated against using regulatory tools.”
He added the problem is compounded by news media and some public officials, who have reported that by nature, hedge funds are susceptible to fraud, money laundering and tax evasion.
That is why CIMA accepts numerous speaking engagements to participate in discussions regarding enhanced regulation of hedge funds.
Mr Linford explained that a recent FSA discussion paper on consumer protection noted that it does not currently see significant risks to UK retail consumers from the hedge funds industry. Partly, because there is very few direct retail investor participation and indirect exposure through pension and traditional investment management vehicles is a reflection of investment diversification.
“The Cayman Islands authorities are taking further steps to mitigate the risks posed by the growth in hedge funds by seeking to clearly distinguish between private and public funds, by proposals to raise the level of minimum investments in private professional funds to ensure that only sophisticated persons invest in these vehicles, and by proposals to require appropriate disclosure on the level of regulation of private funds so that potential investors are alerted to the level of oversight involved,” he said.
He added the Government is increasing the Authority’s budget so it is able to hire more staff to keep up with the increasing oversight demands.
Furthermore, the Authority is implementing E-reporting, which will also serve to enhance the oversight tools available and provide better statistical data on the size and capital flows related to hedge funds.
Mr Linford added that if it is ultimately determined that new international standards are necessary in hedge funds - offshore jurisdictions like Cayman, will take steps to make sure that any new standards will be carried out on a level playing field basis. Especially since Cayman already has higher standards than some onshore jurisdictions.
-Net News-
Posted by su at 9:55 AM | Comments (0)
Funds of hedge funds eyeing stocks
Funds of hedge funds expect to make solid profits over the next two quarters, with Japanese and US stocks seen as particularly good investments, a Reuters poll shows.
The Reuters survey of 10 funds of hedge funds, which together manage some $74 billion, forecast average returns in the next three to six months.
Funds of hedge funds spread their money between hedge fund strategies to diversify their portfolios and minimise risk. Funds were slightly more optimistic about expected returns across a range of strategies compared with the last quarterly poll in December.
The survey showed funds allocating the biggest part of their money an average of 36.5 percent in the second quarter of 2006 to the long/short strategy, which buys stocks seen as cheap and short sells those that are expensive.
They predicted above average returns for the overall long/short strategy over the next six months. Strong global economic growth should support share prices and increase profits from long/short strategies, which tend to make most of their money by prices trending up, they said. Increased volatility in equity markets may also create opportunities for arbitrage hedge funds, which buy and sell securities against each other.
“Greater volatility is a path to higher return,” said Russell Abbott, senior vice president at Auda Hedge in New York. “You can make the case for modestly higher equity prices internationally (but) I am bullish on volatility within equity markets and the opportunities that will give our managers to pick the winners from the losers.”
Seven of the funds in the Reuters poll picked long/short equity or some form of it as their hot strategy over the next three to six months. Across regions, they saw the strongest returns from Japanese stocks in the next six months and were more upbeat on the outlook for US stocks in the third quarter. Emerging markets, M and A boost
Solid returns were also seen in the global macro strategy, which involves taking positions on macro-economic trends and spotting directions in currency and commodities futures markets. Fund of funds said they would be allocating around 14 percent of their assets to the strategy over the next three months and expecting average returns.
Over the next three months, they predicted slightly below average returns for managed futures, which trade using buy and sell signals from computer models and above average returns for emerging market strategies, which use equities or fixed-income instruments.
“Many of the foreseeable risks to emerging markets in 2006 a decline in risk appetite, reduction in global liquidity, sharp rise in US Treasury yields and decline in commodity prices lie outside the asset class,” said Kris De Souter, head of multi-management at Dexia Asset Management. Those risks were offset by the potential for additional ratings upgrades and strong capital inflows, he added.
But De Souter expected to make the best returns from the merger arbitrage strategy over the next six months, while funds overall allocated around five percent of their money to this strategy and expected to make average returns.
In most M and A cases, hedge funds buy shares of the target company and sell those of the bidder on the expectation that any final transaction price will be a lot higher. Some funds trade the volatility of the stocks involved.
“We expect to see continued merger and acquisition activity driven by deployment of capital from leveraged buyout funds raised in 2005 and pressure on companies to re-leverage their balance sheets to enhance shareholder returns,” he said.
-Daily Times-
Posted by su at 9:49 AM | Comments (0)
Are emerging markets facing bubble trouble?
Heady returns in emerging market assets in the past three years have caught the attention of even the most risk averse investors such as pension funds.
But investors are now closely examining what is being served up in front of them as the rich valuations of emerging market currencies, stocks and bonds wobble in the face of global central banks raising interest rates.
Some analysts go as far as saying that investors may have underpriced or mispriced country risks and are highly vulnerable to a sell off in global financial markets.
Emerging markets have indeed been booming.
Russia's benchmark RTS index <.IRTS> soared 130 percent between early May 2005 and the middle of last month.
On average markets in the six Gulf countries were up 92 percent last year. The Saudi Index <.SASI> ended 2005 up 104 percent and more than 600 percent up from 2002. The Dubai index <.DSI> rose 130 percent last year.
In contrast, the FTSEurofirst 300 Index <.FTEU3> gained about 22 percent in 2005, while the S&P 500 <.SPX> rose just five percent.
Armed with ample cash and low interest rates, investors turned more risk-loving and chased returns in high-yielding emerging markets.
For example, Ashmore Investment Management, which manages $18 billion (10 billion pounds) in emerging debt and equity, said on Thursday it has been selected by San Francisco Employees' Retirement System to run a $120 million emerging market equities mandate.
But as appetite for risk decreases and central banks in major industrialised economies such as the United States and euro zone raise borrowing costs, investors are turning cautious.
The Bank of Japan scrapped its ultra-easy monetary policy on Thursday, worrying investors about the withdrawal of global liquidity from financial markets and the beginning of the end of the carry trade in which investors borrow in a low yield currency to invest in higher yielding assets.
BUBBLE TROUBLE
The slide in many emerging equity markets and currencies in the past few trading sessions has sparked concern as to whether a bubble is about to burst.
"From what I am reading and seeing I think country risks have been sacrificed in the search for yields," said Simon Derrick, head of currency research at Bank of New York.
Derrick said the current situation bears an uncanny resemblance to the internet bubble in 1999 and subsequent collapse of global stock markets.
Similarly, emerging market investors remember the meltdown of 1997-98 -- the Asian and Russian financial crises -- after hot money flowed into riskier assets.
The Bank of International Settlement in its latest quarterly report raised concerns about whether investors were discriminating sufficiently among borrowers.
It said credit ratings suggested that investors' appetite for risk had helped to drive emerging market sovereign bond spreads to record lows.
"Nevertheless, to the extent that investors may have underpriced country risk, emerging markets could be vulnerable to a repricing," the report said.
Credit Suisse in a client note said structural changes in the pattern of fund inflows show retail investors are focusing on broad-brush macroeconomic themes rather than valuations.
It said tracker funds accounted for 40 percent of inflows into the asset class in January, while actively managed funds saw an outflow during that period.
"This leaves fund inflows, to our mind, potentially vulnerable to business cycle risk, particularly in one of the 'BRICs' (Brazil, India, Russia and China) countries," it said.
DISCERNING INVESTORS?
Investors may already be distinguishing between good and bad sovereign credits and currencies and not relying on high yields to generate returns for portfolios. Take central Europe.
The Hungarian forint has lost about 2 percent so far this year dipping to a two-year low amid the emerging markets sell off on Wednesday despite domestic interest rates at 6 percent.
On the other hand, the Czech crown has firmed 1.25 percent in 2006 despite a negative yield differential to the euro zone.
Economies with macroeconomic imbalances are likely to suffer more if global risk appetite plunges.
But some fund managers say while the recent bout of market indigestion has drawn concern, appetites remain healthy.
A rise in emerging market assets comes against the backdrop of vastly improved fundamentals, chief of which are current account surpluses, built on in some cases by a rise in crude oil and other commodity prices.
"From the broad scheme of things there is some worry about the liquidity overhanging various financial assets, but the fact of the matter is the Fed and others now have a more limited impact on the global liquidity situation," said Rob Drijkoningen, head of emerging market debt and high yield at ING Investment management in The Hague.
-Reuters-
Posted by su at 9:43 AM | Comments (0)
Middle East investors develope huge appetite for hedge funds
The appetite among Middle East investors for hedge fund products, especially among institutional investors, is on the increase, according to a hedge fund industry expert. The past 20 years have seen enormous changes in the global hedge fund industry, with rapid asset growth from about $38 billion in 1990 to over $1.1 trillion today, Antoine Massad, chief executive officer of Man Investments Middle East Ltd., the asset management arm of Man Group PLC, told the 7th Hedge Fund World Middle East 2006 conference held here last week.
"At this point, the alternative industry has made the transition from a niche investment area to become a mainstay of the asset management industry," he said. Emphasizing that the company has a long association with this event and indeed with the region, Massad said this year was a very special one for Man Investments in the region. "Not only are we celebrating our 20th anniversary in the Middle East, but we have also just opened our fully-owned subsidiary, Man Investments Middle East Ltd., at the Dubai International Financial Center (DIFC). Events like these help us to reach out to investors and explain the current and future shape of the industry," he added.
Established in 1983, Man, a leading global provider of alternative investment products and solutions as well as one of the world's largest futures brokers, has launched more than 450 products, many of them with leading financial institutions. It employs over 1,100 people worldwide. Man manages $45.8 billion assets, some 10 percent of which come from the Middle East.
Man has key centers in Switzerland and London and it has offices in Chicago, Hong Kong, the Middle East, Montevideo, New York and Tokyo.
Massad said investments by private clients from the region in hedge funds had slowed in 2005, as booming local markets lured investors. Institutional investments, however, remained stable. He said acceptance of the hedge fund industry, which uses leveraged buying, futures and options, short selling and index products, had grown in the past 10 years and regional institutions were increasingly investing in hedge funds.
Assets under management at Man have grown by 20-25 percent annually over the past five years, Massad said.
"The next five years will bring greater regulation, consolidation, standardization of IT and reporting, and increasing regionalization of products. Hedge fund providers will have to adapt to this new environment and only those who have the capacity to invest in research and product development and in exploring new markets and opportunities will survive this transformation," he added.
"The shift in investor demand and the emergence of new strategies that require in-depth research and industry participation is creating broad economies of scale in the global hedge fund industry. In the coming years, this will drive consolidation, creating larger, international investment houses that provide a higher level of service, transparency and investor choice. Further developments and enhancements within regional financial centers could only result in a range of new hedge fund products trading in Arab markets," Massad said.
"The past year has been an important one for the hedge fund industry in the Middle East, particularly with the emergence of a new international financial center in the region. The DIFC appears to be a crucial step toward the creation of locally-focused funds, while the continued institutionalization of the industry has brought it into the mainstream of asset management," Massad said.
The growth rate of hedge funds varied between 20-25 percent over the past five years and should level out and hold at about 15 percent till 2011, Man Group Chief Executive Officer Stanley Fink told the conference, which attracted over 600 investors and financial services experts.
Commenting on the growth areas for hedge funds, Fink said good returns were to be seen in the emerging markets, which are the biggest growers, utilizing a macro strategy. Although there will always be moments in time when local stock markets offer a host "hot" options which provide instant returns, the long-term prospects of hedge funds remain good, offering a stable and continued 18-20 percent profit.
DIFC Chief Executive David Knott said that DIFC was in the final stages of establishing a regulatory framework for collective investment funds (CIF).
He also urged all participants to consider opportunities for funds management within the DIFC under a regulatory regime that will be highly credible but also commercially balanced.
A collective investment fund is a shared fund which allows investors to participate in a wider range of investments than may be feasible for an individual investor and to share the costs.
The key policy considerations when establishing domestic funds — funds that are established or domiciled within the DIFC — are that they are badged as DIFC funds and adhere to its core principles of integrity, transparency and efficiency. He said that domestic funds must be readily accepted for international passport purposes, which means that regulatory approach is recognizable to international regulators and adheres to the core principles laid down by the International Organization of Securities Commission (IOSCO).
-Arab News-
Posted by su at 9:40 AM | Comments (0)
March 8, 2006
Hedge fund media coverage hits record in 2005
The world's media wrote about hedge funds a record 39,989 times in 2005, a 43% jump from 2004 and more than six times as often as in 2000, according to 100 Times a Day: Hedge Funds and the Media, new research from Walek & Associates, the leading independent public relations firm serving the global hedge fund industry.
"More than 100 times a day the world's press writes about hedge funds and their influence and insights in M&A, corporate governance, trading, investing and other core areas of the global economy," said Thomas Walek, President of Walek & Associates, as the research was released at the 7th Annual Hedge Funds World Conference here.
"The message to hedge fund managers is clear -- ignore the press at your peril," Walek said. "Today, being a smart hedge fund manager is not enough. Single style, multi-strategy and fund-of-fund hedge fund executives must realize the importance and persistence of the media and take steps to control their own media exposure and make it work for them."
"Already in 2006 we are seeing a big increase in hedge funds interacting with the media. As changing U.S. regulations allow greater media transparency for hedge funds, they continue to influence and sit in the first chair in deals, transactions and markets around the world," said Walek, who authored the study as part of the firm's "Alternative View" research and analysis series.
A record 39,989 articles mentioning "hedge funds" were published in 2005, according to the latest Walek & Associates research, which is based on data from Factiva for the period of January 1, 2005 to December 31, 2005. Of those, 10,609 articles were "features," in which the term "hedge funds" was included in the headline or the article's first paragraph. Of the nearly 40,000 articles, 9,717 appeared in the world's top 25 publications including Nikkei, Financial Times, The Wall Street Journal, Reuters and the South China Morning Post.
The second quarter was the most active period of 2005 for hedge fund-related articles, when 12,244 articles appeared. This coincided with a downturn in global equities markets and an upturn in global credit market jitters associated with problems at US automakers, Walek noted.
-PRNewswire-
Posted by su at 4:34 PM | Comments (0)
Hedge funds become more mainstream
Hedge funds are becoming increasingly popular, according to a number of recent reports.
The speculative funds, which manage investments on behalf of a select group of wealthy private investors and businesses, are notoriously secretive, but the worldwide hedge fund market has grown rapidly and is now worth around £600 billion.
However, the Telegraph reports that they are becoming more transparent, accessible and "mainstream", with regulatory challenges to the historical secrecy of the funds and their close links with investment banks taking place in the UK, France and Spain.
The UK's financial markets watchdog recently fined hedge fund group GLG £750,000 and one of its employees, Philippe Jabre, the same amount over accusations of market abuse and has pledged to crack down on misbehaviour by fund managers.
The Financial Services Authority (FSA) fine is one of the largest ever handed out to an individual and the investigation into GLG and Mr Jabre, led by FSA head of enforcement Margaret Cole, has taken two years.
A number of hedge fund management groups have announced plans to float on international stock exchanges, or are understood to be considering becoming listed companies, forcing them to become more transparent.
Hedge funds have also been in the public eye in recent weeks following the revelation that David Mills, the international lawyer husband of UK culture secretary Tessa Jowell, remortgaged their home in 2000 and invested £400,000 in hedge fund Centurion.
-BobsGuide.com-
Posted by su at 4:32 PM | Comments (0)