June 2006
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June 21, 2006
HNWIs continue to diversify investments
THE number of people in Britain with more than $1 million in cash and investments rose more rapidly than in America or the rest of Europe last year.
A survey from Merrill Lynch and Capgemini found that 448,070 Britons have financial assets, excluding their property, that is worth more than a $1 million (£543,000). The figure is 7.5 per cent higher than last year, boosted by rising equity markets, increases in GDP and a high oil price.
Globally, the number of people falling into the $1 million or more category grew by 6.5 per cent, with more and more individuals from the emerging markets of China, India and Russia boosting the total. Altogether, the estimated 8.7 million individuals worldwide in this wealth bracket have net total assets of $33.3 trillion, an increase of 8.5 per cent on 2004’s figure. The super-rich, those with $30 million or more, grew at an even faster pace in 2005 — 10.2 per cent.
There are 85,400 of them worldwide.
Nick Tucker, head of Merrill Lynch global private client UK and Ireland, said: “The number of rich individuals in the UK grew by a solid 7 per cent in 2005, driven by growth in gross domestic product and company market capitalisations.” The figure contrasted with Europe, where those with more than $1 million grew by only 4.5 per cent, and America, where the figure was 6.5 per cent.
High net worth individuals (HNWI) are continuing to diversify their investments, choosing an increasing array of asset classes and geographies. In 2002, only 10 per cent of HNWI’s assets were put in alternative investment such as hedge funds, commodities and private equity; in 2005, that percentage had grown to 20 per cent. Private equity investments have become more popular among the wealthy.
The survey found: “During the technology boom, private equity was a popular alternative investment, but its popularity sank during the subsequent market downturn. Private equity re-emerged as a popular alternative investment in 2004 and continued to attract attention and funds in 2005. In fact, private equity was the primary driver for increased allocation to alternative investments in 2005.”
Those in the $30 million or more category were found to be ahead of market trends on investment. The survey found: “They tend to be more sophisticated and better-informed than other high net worth investors when it comes to managing assets. [Their] behaviours and attitudes about wealth management hold important lessons for high net worth individuals and financial institutions.”
-Times-
Posted by su at 9:47 AM | Comments (0)
June 19, 2006
CS/Tremont hedge fund index falls 1.3% in May
The index, which tracks more than 400 managers, is still up 6.4% for the first five months of 2006, Credit Suisse and Tremont Capital Management said on Thursday. In October 2005, the hedge-fund index shed 1.46%.
"After weathering the worst month in almost two years, fears of inflation, continued interest rate increases, and a large drop in consumer confidence, characterized the market climate," Oliver Schupp, president of the Credit Suisse/Tremont Hedge Fund Index, said. "Long/Short equity managers with large net and gross exposures were caught."
The Standard & Poor's 500 Index, lost 2.88% in May, while the FTSE All World Index dropped 3.8%.
Emerging markets funds dropped 5.02% on average in May, while equity long/short managers shed 2.84% and managers focused on futures trading were down 2.7% on average.
"With signs that the Federal Reserve would raise interest rates to contain inflation, emerging markets suffered as investors shunned riskier investments resulting in the worst decline of emerging market assets since 1998," said Robert Schulman, chief executive of Tremont.
Hedge funds focused in short selling did well, making 5.39% on average last month, Credit Suisse and Tremont said.
-MarketWatch-
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June 13, 2006
Hedge funds look for better Q4 returns
Fund of hedge fund managers expect returns to pick up in the final quarter of the year after a burst of volatility in global markets that drove many to seek more risk-averse strategies, according to a Reuters poll.
The quarterly survey of 12 funds of hedge fund managers, which together manage $80.6bn, showed average returns would be made over the second half of the year, with improving returns from global macro, long/short Japan, and emerging market strategies in the final quarter.
The poll, carried out from May 24 to June 6, showed little change in funds’ optimism about returns compared with the last survey in March, despite last month’s sharp falls in commodity prices, stocks and emerging markets.
Even so, the latest poll showed a slightly reduced appetite for long/short strategies - buying stocks seen as cheap and short selling those seen as expensive - compared with the March survey.
“We believe we have to stick to quality and that can be found in multi-strategy managers that have a reduced beta (a measure of volatility) and can weather some form of market correction,” said Robert Khoury at Union Bancaire Privee.
He said UBP had reduced its long/short equity position in the past two months to 30-35% from 40-43% previously in some of its more aggressive portfolios.
Despite poor returns by some managers in the last few months, hedge funds traditionally thrive on volatility.
“We like all volatility-related strategies as it appears to be coming back,” said Mark Yusko at Morgan Creek Capital Management. “So much money left the convertible arbitrage and merger arbitrage space that we are raking it in with our managers in those spaces,” Yusko added.
Morgan Creek’s hot strategy over the second half of the year was energy trading.
“There has been a tremendous loss of capital from the energy trading business and that usually leads to strong returns for those who stick around,” said Yusko. However, he added that energy markets should be volatile over the summer as a result of inventory concerns and the hurricane season.
Global macro strategies, which involve taking positions on macro-economic trends and spotting directions in currency and commodity markets, were also seen likely to produce higher returns in the final quarter.
“There is good money to be made in global macro. In the past we have seen very little opportunities for global macro players in fixed income, but that has changed quite dramatically in the last few months,” said Tim Gascoigne at HSBC Republic Investments.
Managers see less ground for optimism within their US portfolios. Median estimates showed allocations to US stocks falling to 13% in the fourth quarter from 15% in the third quarter.
But they are looking to profit from heightened volatility in emerging markets. Median estimates showed allocations to the sector at 8% in the third quarter, up from 6.5% in the last survey, and rising to 9.0% in the final quarter.
“Regardless of excellent returns during 2005 and so far in 2006, this asset class will continue to prosper,” said Dawn Kendall at GAIM Advisors, adding the main risk was that the asset class would become crowded, diluting returns.
She said GAIM’s hot strategy over the next couple of quarters was global macro, which had disappointed last year. This year global macro funds are performing better and would benefit from currency movements, a change in global interest rate policy and rising commodity prices, Kendall said.
–Reuters-
Posted by su at 3:16 PM | Comments (0)
HedgeFund.net releases hedge fund performance estimates for May 2006
Early estimates show the HFN Hedge Fund Aggregate Average, an equal weighted average of all single manager hedge funds in the HedgeFund.net database, was -0.90% in May and is +6.66% year-to-date (YTD). May was the first negative month in the last seven and the Aggregate Average is +10.63% during that time frame. The HedgeFund.net database consists of over 6,100 current hedge funds, fund of funds and CTA's.
Equity markets worldwide sold off in May and as such, strategies highly influenced by equity returns with a long bias shouldered the majority of the losses. The HFN Long Only Average fell -4.66%, one of the few HFN Averages to have a worse month than the S&P 500. The HFN Small Micro Cap Average was -1.16% and the HFN Technology Sector Average fell -3.95%. Alternatively, the HFN Short Bias Average was +3.86%.
Emerging markets experienced a large drawdown in May as well. Three of the four highly regarded BRIC countries, Brazil, Russia and India, were a major reason for the HFN Emerging Markets Average falling -4.35%. Worries that recent commodity price surges may have been abnormally high along with the potential for a Federal Reserve induced US economic slowdown weighed on the outlook and equity markets of these regions. The fourth BRIC nation, China, may have been supported throughout May by attention brought to the now trading Bank of China IPO.
The HFN Energy Sector Average was -2.33% in May and is +9.22% YTD.
Winners for the month were managers whose strategies are inherently dependent on volatility. This includes many arbitrage and option based strategies. The HFN Statistical Arbitrage Average was +2.18%. The HFN Convertible Arbitrage Average was +1.45% and the HFN Options Average was +1.34%
Regionally, the HFN Asia Average was -2.77% in May and +4.25% YTD, significantly lower than the HFN US Average which was -0.60%, but surpassed by the HFN Europe Average which was -3.24%. The worry of a slowdown in consumer spending and the effect it will have on highly dependent Asian exporters weighed heavily on Asian markets and in turn the HFN Asia Average.
-HedgeFund.net-
Posted by su at 2:55 PM | Comments (0)
Incentive fees may be clue to hedge fund success
It's not easy for investors to gauge how successful a hedge fund is likely to be, but a manager's confidence in producing high returns as indicated by a fund's fee structure is one place to start.
Investors typically look at a fund's history, but they could also examine the composition of its assets to discover how much is new money and how much is true investment gains.
Hedge funds can typically charge between 1 to 2 percent annual management fees and up to 20 percent of any outperformance of pre-set targets such as money market rates.
However, some of the best performing long-established hedge funds have recently moved away from this model and are now charging performance fees only, sometimes up to 50 percent.
"Today, you are seeing excess demand for the managers with the highest fees and little demand for managers that are cutting fees," said Steven Drobny, founding partner of consultancy Drobny Global Advisors.
One high-profile example is U.S.-based Clarium Capital with more than $1 billion under management, which returned more than 50 percent in 2003 and 2005 and charges only incentive fees of 25 percent.
Performance fees align the interests of investors and hedge funds, which should not be looking to boost management fees by asset gathering, in the way of traditional fund managers.
"There are some who charge 40 or 50 percent performance fees," said Sunil Chadda, head of hedge funds and derivatives at consultants Citisoft. "If you want performance you pay for it."
Traditional fund managers on average command annual management fees of half a percentage of assets and rarely any performance fees.
BEST AND WORST
Over the past couple of years as the industry's assets have risen -- around $1.5 trillion compared with $500 billion in 2000 -- the fee differential between the best and worst has widened, even though the average has stayed steady.
Management fees for many are there to cover the costs of running a business.
"It's not realistic to think the industry can structure itself only on performance fees," said Nicolas Campiche, who heads a group that selects hedge fund managers for clients at Pictet et Cie.
"The risk for a fund that is running just on performance fees is that if one year it hits a soft patch in performance or maybe has a negative year then the business can't really be sustained."
But how can you tell if a hedge fund has hit a short period of weak returns or whether the problem is more ingrained?
Investors say the thing to do is look at the composition of a hedge fund's assets and work out how much is new money and how much is investment return.
High returns -- 10 percent or more -- would suggest the focus is on making money rather than asset gathering.
The size of assets too should reveal clues about how incentivised a manager is to produce high returns.
"Management fees shouldn't become large enough so the manager doesn't need to perform any more," Campiche said.
"For instance a $12 billion hedge fund charging a 2 percent management fee doesn't really need to perform to generate performance fees that are enough to sustain the firm."
-Reuters-
Posted by su at 2:36 PM | Comments (0)
June 7, 2006
A look at today’s hedge fund manager
More than 60% of hedge fund managers have been running funds between five and 15 years, according to a survey by Infovest21.
That breaks down to 36% managing funds for five to 10 years and 25% at the helm 10 to 14.9 years.
The survey also found that the average hedge fund employs 35 people, with four principals and five portfolio managers, and has an average of 88 investors.
Further, 29% of HFs have more than $1 billion AUM, with 46% falling into the $100 million-to-$999 million category, and 25% with less than $100 million.
Nearly four of 10 HF managers polled say investors chose them for their performance, and only 10% of hedgies say they allocate to other managers mainly for the same reason – performance.
Based on the survey, the investor base was 43% high net-worth/family office, 23% fund of funds, 20% financial institutions and 9% pension.
On average, managers hope to return 16.6% this year.
-Institutional Investor-
Posted by su at 9:30 AM | Comments (0)
June 6, 2006
For HFs, it’s location, location, location
What they say about real estate appears to apply to foreign hedge funds: It’s all about location.
A recent Greenwich Associates/Global Custodian study found that European hedge funds are twice as likely as U.S. HFs to invest in Asia for a simple reason: “From a time zone perspective, it’s much easier to do business in Asia from London than from New York,” according to Greenwich consultant John Colon.
The survey bears out that assertion: 50% of Euro hedge funds invest in Japan and 40% in the rest of Asia, while only about 28% of U.S. hedge funds invest in Japan and Asia. It almost goes without saying, then, that European hedge funds are more aggressive investors in central and eastern Europe, with 25% doing so, while an estimated 17% of U.S. funds are in the region.
The Europeans are out ahead even in regions closer to these shores, with 16% investing in Latin America, compared to only 10% of their American peers.
-Institutional Investor-
Posted by su at 9:05 AM | Comments (0)
June 2, 2006
Hedge funds hit hard in May
Hedge funds took it on the chin during the recent market correction at the end of May, owing to sharp declines in metal prices and declines in the broader stock markets, according to analysts.
After two consecutive weeks of strength in the beginning of May hedge funds fell sharply in the third week. The Merrill Lynch Diversified Hedge Fund Index ultimately posted a 0.94 percent loss, according to an analyst note from Merrill Lynch. The hardest-hit strategies were equity long/short funds, global macro and managed futures funds.
Hedge funds are private, lightly regulated investment pools for wealthy individuals or institutional investors. The funds use a wide variety of strategies, from betting on or against stocks, currencies or commodities to more esoteric strategies involving "derivative" investments or turning around distressed companies. But they generally won't welcome individuals as investors unless they have a net worth of at least $1 million.
Managed futures funds, which trade commodity futures contracts, fell the hardest last week, declining 3.22 percent in the week ending May 22, according to Merrill Lynch's hedge fund index, owing in part to a sharp drop in precious metals prices following a sell off. Managed futures funds lost 2.12 percent for the first three weeks of May.
U.S. equity long/short funds, which hold long positions in stocks and hedge those positions by shorting stocks, ETFs or related instruments, fell 2.68 percent during the same week, thanks to a broad market sell off. The strategy fell 3.54 percent during the first three weeks of May.
But the Merrill Lynch analysts also blame new Federal Reserve Chairman Ben Bernanke - not because of his policies, but because the first year for any new Fed chairman means higher volatility and lower equity returns for the S&P 500, according to the analysts.
Global macro funds, which invest in currencies and other instruments in foreign markets, fell 2.76 during the week ending May 22 and are down 2.7 percent for the first three weeks of the month. All but two of the hedge fund strategies Merrill Lynch tracks were in negative territory for the first three weeks of May.
These early summer doldrums fall on the heels of a strong first quarter for hedge funds, which posted their best first quarter in three years at the start of 2006 and pulled in $24 billion in new assets as wealthy investors sought alternatives to the stock and bond markets, new research shows.
The first-quarter flows bring the total amount of assets invested in hedge funds worldwide up to about $1.2 trillion, according to Chicago-based hedge fund tracker Hedge Fund Research.
-CNNMoney.com-
Posted by su at 11:21 AM | Comments (0)