May 2006
« April 2006 | Main | June 2006 »
May 31, 2006
Japanese investors embrace hedge funds
Japanese pension funds are examining alternative investment vehicles more closely, according to panellists at the Terrapinn Investor Asset Allocation Japan conference in Tokyo.
But Masakazu Arikawa, president for Mcube Investment Solution, Japan, and former president of the Sony Global Pension Management Corporation, highlighted that Japanese investors are often perceived to be "last in and last out" with certain investor trends, such as hedge funds. It is necessary, he added, to have a good grasp of the cycle of hedge funds.
Daisuke Hamaguchi, director of pension investment at the Pension Fund Association in Japan, added that being last in and last out was not necessarily a bad thing as investors must refer to historical data.
"We might be last in and last out, but it's true of everything (in Japan). We have to have a good critical understanding of things."
In another panel discussion Hans-Jorg Baumann, CEO and chairman of Swiss Capital Group, said that hedge funds were by no means a bubble but rather had become an integral part of asset management.
"If you accept that volatility will increase, there is no other way than to enter hedge funds."
Ed Rogers, founder and CEO of Rogers Investment Advisors, used a baseball analogy.
"We're in the eighth inning in the US, the fifth inning in Europe and the first or second in Japan and Asia."
Asian investors have been slower to get on board, but Japanese investors were well-placed.
Stanley Howard, president of Investor Select Advisors, noted that the opportunity for Japanese-based hedge fund managers would grow, including domestic managers who were coming to the fore.
-Global Investor Magazine-
Posted by su at 11:34 AM | Comments (0)
May 26, 2006
Mercer European Survey: Alternative investments will continue to increase, focus on 'alpha' strategies like hedge funds rather than private equity
European pension funds are managing risk in their portfolios by diversifying and placing more money in alternative assets, according to a Mercer survey.
The new European survey by Mercer Investment Consulting (Mercer IC) covers 570 European pension funds with EUR 364 bn assets under management. The survey also found that, as well as reducing risk, pension funds are putting greater emphasis on active manager strategies ('alpha' strategies) to enhance returns.
Results showed that the UK and Ireland have the highest exposure to equities in Europe, at 62 per cent and 60 per cent respectively. UK pension funds have reduced their equity exposure from 68 per cent three years ago, at a rate of two percentage points a year. At the other end of the spectrum, French pension funds invest just 28 per cent in equities on average while Germany, the Netherlands and Switzerland invest 31 per cent, 33 per cent and 33 per cent respectively. Funds in these countries have correspondingly higher allocations to bond markets.
Andy Green, European Director of Consulting Policy at Mercer IC, commented: "UK and Irish pension funds have traditionally been more equity biased than funds in other European countries, although allocations are falling gradually year on year."
Equity investment in Europe is split broadly equally between domestic and international markets.
ALTERNATIVE ASSETS
As pension funds seek to diversify their risks, interest in alternative investments is growing.
Property is the most popular alternative to equities and bonds, with 25 per cent of UK funds investing in this asset class compared to 62 per cent on average in Continental Europe and Ireland. Virtually all Irish funds have exposure to property compared to 68 per cent in Switzerland and 41 per cent in the Netherlands. "Property has been a long-standing alternative investment to equities and bonds for pension funds." commented Green. "With prices having risen strongly in many domestic property markets, we are now seeing much greater interest in international investment as pension funds seek to enhance returns."
In the UK, 7 per cent of funds invest in hedge funds, allocating 6.9 per cent of their assets on average. Larger funds are more likely to invest in hedge funds, with around one in ten doing so. In Continental Europe and Ireland, allocations are generally higher, with 13 per cent of funds on average investing in this asset class.
Green said: "The proportion of funds investing in hedge funds has the potential to rise even further this year, by up to 5 percentage points across Europe, as pension funds become more comfortable with this asset class. Pension funds are also showing more interest in hiring single manager hedge funds, typically equity market neutral and long/short funds, in addition to the more diversified fund of hedge funds. This is particularly true in Continental Europe."
Alongside hedge funds, active currency management is the most popular alternative to property in the UK, where 7 per cent of funds on average now employ an active currency manager. In Continental Europe and Ireland, greater use is made of tactical asset allocation (TAA). Use of both strategies is likely to increase this year, particularly in Ireland and Spain, as clients seek return-enhancing opportunities, although activity will depend on the availability of products.
Interest in private equity remains strongest among larger funds, with 22 per cent of UK funds with over GBP 500m assets investing in private equity. In Continental Europe and Ireland, 12 per cent of funds with over EUR 750m invest in private equity.
Green said: "Exposure to private equity by pension funds is unlikely to increase substantially across Europe this year. It can be difficult to access the best funds and it takes a long time to build up the desired allocation. While investors may find the investment rationale for this asset class appealing, they are generally opting for alternatives that are easier to implement and manage."
LIABILITY-BENCHMARKED INVESTMENT STRATEGIES
The survey identified that one in ten UK schemes (10 per cent) 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. Use of swap overlays and liability-benchmarked mandates is also expected to grow significantly in Ireland and the Netherlands (up to around 40 per cent), where the regulatory and funding issues are similar to the UK. Exposure elsewhere in Continental Europe is likely to be limited.
"Liability-driven investment and interest rate hedging products are huge growth areas for asset managers and they are generating significant interest in the UK, Ireland and the Netherlands. Plan sponsors and trustees have managed investment policy relative to their liabilities for many years, but these new products allow them to manage assets directly against liability benchmarks and mitigate some of the risks that are not expected to generate any additional return. However, many schemes in the UK are finding the current price of long-dated bonds and their derivatives unattractive," said Green.
-HedgeWeek.com-
Posted by su at 2:14 PM | Comments (0)
May 25, 2006
Market drop a test for Asia's hedge fund sector
This month's sell off in Asian markets will shake out the region's weaker hedge fund managers, but rich trading opportunities should ensure the sector's growth for years to come, industry experts said on Thursday.
Fund of fund managers, who invest millions with hedge funds on behalf of pension funds and other large players, said the volatility will ultimately benefit the best managers.
"It's a good test for managers here. If you look at the past four to six months, markets have just been running away, and you can't really tell who's good and who's not," Jerry Wang, chief executive officer of Vision Investment Management, told an investment conference in Singapore.
"Essentially the higher the beta (volatility) the better. And I think what's happened in the past week or so will enable us to separate the men from the boys."
Vision, a Hong Kong-based fund of hedge funds, manages about $1.7 billion in assets.
Hedge funds are loosely regulated investment pools that aim to make money in both up and down markets, often by employing sophisticated trading strategies like short selling and leverage.
But these strategies can backfire when managers fail to anticipate or plan for major market swings. The most famous such case was U.S.-based Long Term Capital Management (LTCM), whose collapse shook the world financial system in 1998.
No major hedge fund failures have come to light since the start of the latest downswing.
But the fund of fund executives told a conference in Singapore that less-skilled managers will likely see their returns hit hard by the downturn. These managers will then have a tougher time attracting money from investors including fund of fund managers going forward.
"I want to know that they did the right thing at the right time, and also, that when things started to get better, that they didn't continue to run scared," said Gary Sabshon, who manages emerging markets investments for Tremont Capital Management.
The fund of fund managers said the longer-term outlook for Asia's hedge fund sector remains bright, because the region's less efficient markets offer ample trading opportunities.
Wang pointed to the convertible bond arbitrage sector, noting that in the United States there are "10,000 eyeballs staring at the screens" looking to capitalise on mispricing.
Distressed assets are another area where it is easier to make money in Asia than the United States because there is less information flow, he said.
"Because the markets are that less developed, the markets are a lot less crowded. While we don't have as many sophisticated strategies as you may have in the United States and Europe, what there are are (opportunities for) simple easy money to be made," said David Walter, head of research with KBC Alpha Asset Management, which oversees about $1.3 billion in assets in Asian fund of funds products.
The fund of fund managers said one of Asia's shortcomings was a lack of diversity in the strategies employed by hedge fund managers. More than 60 percent of Asian hedge fund assets are estimated to be long/short equity funds.
They said they would be keen to find more hedge funds that employ special situation or event-driven strategies, or specialise in volatility trading.
-Reuters-
Posted by su at 11:11 AM | Comments (0)
May 10, 2006
Barclay Hedge Fund Index gains 2.05% in April, emerging markets up 4.71%
Hedge funds gained 2.05% in April, based on flash estimates for the Barclay Hedge Fund Index. The Index has shown positive returns in 11 of the past 12 months, gaining nearly 18%.
In April, 17 of Barclay’s 18 hedge fund indexes were in positive territory. Barclay’s Emerging Markets Index jumped 4.66% and is up 14.97% in 2006, continuing this sector’s strong bullish performance from 2005. Barclay’s Global Macro Index was up 4.02%, Distressed Securities gained 3.76%, Equity Long/Short rose 1.96%, and Equity Long Bias Index gained 2.01%.
“Directional strategies such as Emerging Markets and Global Macro continue to provide impetus to overall hedge fund returns,” says Sol Waksman, founder and president of The Barclay Group. “Most Emerging Market equity indexes had solid gains in April. Macro funds were able to profit from opportunities presented by rising U.S. interest rates, a weakening U.S. Dollar, and strong price gains in precious and industrial metals.”
-HedgeNordic.com-
Posted by su at 10:39 AM | Comments (0)
May 2, 2006
Young hedge funds make best returns
Hedge funds within the first two years of doing business tend to chalk up higher returns than older funds, which is a key factor for clients to watch, a senior industry figure said on Wednesday.
"There does seem to be some evidence that if you invest in younger hedge funds out there, you will get a better return than in more established hedge funds," Stephen Oxley, managing director of Pacific Alternative Asset Management Co., told an IQPC conference.
Hedge funds less than two years old delivered an annualized return over 10 years to December 2004 of 16.91 percent compared with 6.38 percent all funds in the universe of portfolios tracked by Hedge Fund Research (HFR), Oxley said.
"The gap is still significant even after taking account of the failure rate of start-ups, a factor known as survivor bias."
Over five years, annualized returns for funds under two years old were 11.13 percent compared with overall returns over the same period of 5.17 percent, the HFR data showed.
Investors are more closely scrutinising hedge fund returns, after average returns dropped in 2004 and 2005, although they have recovered in the past few months.
Pension schemes, attracted by the ability of these vehicles to make money in all markets, have poured money into hedge funds, lifting total assets to more than $1 trillion (560 billion pounds) last year.
The sector is projected to surpass $2 trillion by the end of the decade.
YOUNG AND HUNGRY
Hedge funds typically charge management fees of up to 2 percent of assets and performance fees of up to 20 percent of any returns beyond preset targets, but clients can often negotiate lower prices with a start-up eager to get off the ground, Oxley said.
"We usually try to negotiate performance fees down," he said, although he declined to give exact figures.
Young funds tend to perform better, because their managers are keen to make money and establish a brand, are more nimble and able to hunt for market opportunities, and can be more flexible in adopting new ideas, he said.
Older funds often lose momentum, in some cases because their founders become complacent or lose motivation, Oxley said, although he said many older firms still perform well.
"There are huge incentives for these (start-up) fund managers to consider. They are going to work harder and be hungry. That entrepreneurial element to these funds is important."
There are about 8,000 hedge funds worldwide. On average, these businesses last for about 6.5 years, and their lifespan has shortened slightly in recent years, Jurcell Virginia, principal at AIG Specialist Consultants, told the conference.
Hedge fund returns for all strategies rose by an average of around 5.5 percent in the three months to the end of March this year, compared with 7.5 percent for the whole of 2005, according to latest industry data.
-Reuters-
Posted by su at 10:11 AM | Comments (0)