August 2006
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August 30, 2006
London 'may lose hedge fund listings'
Private equity groups and hedge funds are calling on the Financial Services Authority to accelerate changes to the listing rules currently being reviewed by the City regulator.
At the moment private equity groups and hedge funds are unable to list vehicles on the London Stock Exchange because the listing rules are too stringent.
But under changes being consulted on by the FSA as part of its review of the European Union's Transparency Directive, such listings would become possible.
Any changes, however, would not come into effect until the end of next year at the earliest and the industry is warning that the London market could lose out on some significant flotations being contemplated by hedge funds and private equity groups if the changes are not brought forward.
One adviser to the industry said: "I have a number of hedge fund clients who have been waiting for the January deadline but would not wait for the end of the year. They will instead consider listing before this period in Amsterdam."
A number of private equity groups have in recent months chosen to list vehicles in the Netherlands. In April Kohlberg Kravis Roberts, the US private equity giant, listed a $5bn fund in Amsterdam.
More recently, Apollo, another private equity company, floated a $2bn fund on Amsterdam's Euronext exchange.
Private equity vehicles currently choose to list on the Alternative Investment Market, London's junior exchange, and in Continental cities such as Amsterdam because of the less stringent rules governing disclosure and control of the underlying investments.
"The FSA needs to decide between competing policies of keeping London open to investment and a tight quality control threshold," said Peter Linthwaite, the chairman of the British Venture Capital Association.
"At the moment the FSA has an open mind about the topic rather than a conclusion."
-The Telegraph-
Posted by su at 10:19 AM | Comments (0)
Rating firms take note of hedge funds
Credit rating agencies are working on boosting coverage of hedge funds in response to a growing need for transparency in the sector, but face analytical problems and, ironically, a lack of transparency in doing so.
Regulators around the world have been making ever louder noises about boosting transparency in the $1.2-trillion (£640 billion) hedge fund industry, with credit ratings seen as one way of providing an outside assessment of funds’ standing. The big three agencies already assign some ratings to hedge funds, although these are mainly to do with operational risk than credit risk or a fund’s performance.
Standard & Poor’s is working on a new set of criteria for rating hedge funds that is set to be published by the end of the year, a senior official at the agency said on Thursday.
“It’s a high-priority sector for us to develop,” said Scott Bugie, a managing director in the financial services group at Standard & Poor’s. “But it's a tough industry, very challenging analytically.”
S&P already assigns counter-party credit ratings to some hedge funds. Its funds group assigns ratings to the managers of funds of funds that reflect the quality of management and operations. They do not directly reflect performance.
Most of the lending to hedge funds is on a secured basis, Bugie said, and therefore demand from counter-parties for credit ratings is limited, although there are signs of growth in unsecured lending as the industry gets bigger.
Moody's Investors Service issues ratings based on operational risk, said Gary Witt, a managing director for alternative investment ratings at the agency in New York.
“We came up with this in response to discussions we had with institutional investors here in the US,” he said. “Operations risk is something they have concerns about, but also clear that it's a fairly labour intensive area to analyse.”
“(That) is the focus for the moment, but we definitely hope to expand beyond that,” Witt said.
Fitch Ratings has public credit ratings on a few hedge funds, but this business remains restricted to large funds that use the market to raise funding, said Charles Prescott, group managing director for financial institutions at Fitch.
“It’s difficult to overcome the challenges of transparency in rating hedge funds ... which partly explains why the growth in credit ratings for hedge funds has so far been limited,” he said.
-The Telegraph-
Posted by su at 10:16 AM | Comments (0)
Swiss private banks have much to gain from wealthy clients
Porsche sales are booming, Breguet cannot make enough luxury watches to meet demand – and Switzerland's private banks are reporting record profits.
Vontobel, Sarasin and EFG, three quoted banks that form the backbone of Switzerland's mid-sized private banking sector, along with non-quoted Pictet and Lombard Odier Darier Hentsch, reported outstanding interim results this month.
Vontobel, the Zurich-based group that is also a force in structured products, said net profits jumped 54 per cent to nearly SFr131m ($106m).
Sarasin, a Basel-based rival, announced a 50 per cent leap in net profits to more than SFr65m. EFG, the upstart private bank floated last year, said profits had doubled to almost SFr101m.
All three, like much bigger UBS and Credit Suisse, are riding high on buoyant equity markets and rising client affluence. Bull markets bring private banks a double advantage: they encourage clients to do more business, generating commission; and they automatically inflate earnings, as banks' management fees are based on the value of clients' portfolios.
But in spite of their upbeat figures, the three companies' results tell a much more nuanced story.
"The three present a rather differing picture. Although profits have risen across the board, at Vontobel and Sarasin underlying problems of limited growth in net new money in private banking remain the issue," says Thomas Kalbermatten, analyst at Credit Suisse.
EFG showed how it should be done. The bank has an unusual business model, with client relationship officers (CROs) who are virtually independent profit centres at liberty to comb the world for new business. With their number rising by almost 60 per cent to 356, money inflows have boomed.
EFG has also been helped by acquisitions such as its purchase of Harris Allday, a UK broker, which has left EFG on track to meet its goal of raising its assets under management to SFr115bn-SFr125bn in 2008.
At Vontobel, by contrast, booming profitability was fuelled predominantly by structured products – the biggest business of its kind in Switzerland.
Proceeds from alternative investments should rise further following December's SFr80m purchase of a majority stake in Harcourt Investment Consulting, a fund of hedge funds manager.
The bank is also reaping the rewards of its 2004 alliance with Switzerland's co-operative banks. Vontobel sold a 12.5 per cent stake in itself in return for taking over the co-operatives' settlement and custody business, as well as gaining exclusive rights to execute their securities and derivatives orders. Given the high fixed costs of computing power and compliance, the extra throughput is boosting Vontobel's bottom line.
Sarasin's story remains the least clear of the three.
The group is controlled by its partners and Rabobank of the Netherlands. Although Sarasin's size makes it an obvious takeover candidate or consolidator in the fragmented Swiss private banking sector, it has steered clear of big moves, in spite of holding talks with virtually everyone. Analysts say a takeover has not happened because Sarasin's managing partners cannot agree among themselves, let alone with the Dutch. Management changes have not helped.
The future may become clearer when Joachim Strähle arrives as Sarasin's new chief executive on September 1. Mr Strähle, former head of private banking in Asia for Credit Suisse, is expected to provide important openings in a region generating growth for Switzerland's private banks.
For while EFG, which already has a wide international network, has tapped into rising global affluence, Vontobel and Sarasin have been restricted by their predominantly Swiss focus.
Both are trying to expand: Vontobel has offices in southern Germany and Austria, and is targeting central and eastern Europe. Sarasin has taken limited initiatives in locations as diverse as Dubai and Asia. But the two are still largely focused on traditional "offshore" business out of Switzerland.
Profits have perked up, but the long-term threats of spiralling regulation and ever more alternatives for wealthy foreign customers suggests the earnings boom may not last.
-FT.com-
Posted by su at 10:13 AM | Comments (0)
August 8, 2006
Hedge funds lose a smidgen in July
The average hedge fund ended July nearly where it started, posting a tiny loss during a month marked by more stock market price swings, according to data released on Monday.
The Barclay Hedge Fund Index, compiled by the Barclay Trading Group in Fairfield, Iowa, shows these lightly regulated investment pools slipping 0.07 percent in July after losing 0.30 percent in June.
In May, the average hedge fund lost 1.82 percent, the group said.
Nine out of 18 hedge fund indexes lost money last month, with funds that specialize in technology declining the most, Barclays's first estimates of last month's data show.
"Once again we are seeing equity-based directional strategies spilling most of the red ink," Sol Waksman, Barclay's president and founder said in a statement.
The Technology Index dropped 1.39 percent while the global macro index -- where funds bet on interest rates, currency movements and often commodities -- lost 1.36 percent.
Last month stock market prices zoomed both higher and lower and some particularly prominent companies, including online retailer Amazon and computer maker Dell suffered heavy losses.
In a familiar pattern, funds that bet the stock market would decline, fared the best last month with so-called short sellers gaining 2.84 percent.
The Barclay numbers are among the first to show how the $1.2 trillion hedge fund industry fared in July. Performance data from other groups, including industry benchmark Hedge Fund Research, are expected in the next days.
-Reuters-
Posted by su at 2:47 PM | Comments (0)
Will investable indices survive?
The following extract is taken from an announcement by PlusFunds Group in 2002 backing the launch of the S&P Hedge Fund Index:
'However, fund of fund managers vary widely in their ability to deliver these benefits [access, reporting, diversification…] on a sustainable basis and the extra layer of management entails additional management and performance fees, which raise performance requirements even higher. Indexing offers investors the potential to efficiently achieve diversification across the major hedge fund strategies, plus a clearly defined market exposure - without the uncertainties of placing faith in a fund of funds manager.')
About four years later:
The S&P decided to no longer publish its managed account based Hedge Fund Index,
PlusFund filed for Chapter 11 and is told to go out of business by the end of July,
PlusFund sued S&P over its decision to pull the plug on the index.
There have been studies like: 'Hedge Fund Indices: A new way to invest in absolute return strategies' from Lars Jaeger, Partners Group, discussing the different aspects of such indices. We would like to point out a few of the main attributes of such indices:
Investable Indices serve as a benchmark for a lot of investors.
They offer higher transparency in a few aspects (e.g. like portfolio construction, selection guidelines).
Investable Indices have limited access to the Hedge Fund Universe.
In our view, there is one main question an investor has to ask himself: how much is one willing to pay to get something additional? In the case of Investable Indices the question is, how much are you willing to pay (through lower performance because of limited access) to get the higher transparency (and probably better liquidity).
What did an investor who allocated his money to an Investable index pay in the past? To answer this question we need another benchmark. In our opinion there exist two options:
Either you compare to Fund of Hedge Fund Indices. In this case you have to take into account that there are some biases in these indices (survivorship/self selection/reporting biases). For sure, these biases are smaller than the ones for Hedge Funds indices, which are estimated to be around 3%. As a rough estimate subtract 1% from these returns.
Or you compare to a very broadly diversified Fund of Hedge Funds covering all strategies and geographies. Forgive us for comparing with our own fund, but as PrimFund Diversified aims to be a one-stop solution for hedge fund investing with more than 250 underlying Hedge Fund investment, it seems well suited for such comparison.
According to this overview, one pays between 2.1%and 4.2% to get the advantages of Investable Indices.
As the return characteristics of Fund of Hedge Funds are typically stable, the costs of around 3% are substantial. At the end of the day an investor has to decide himself whether he is willing to pay this premium for the additional advantages of Investable Indices. At Primores, our preference is pretty obvious; we strive to deliver excellent risk adjusted returns with unconstrained products for our clients
Posted by su at 2:42 PM | Comments (0)
Long/short equity falls further in July
In a month of mixed returns for the Dow Jones Hedge Fund indexes, long/short managers were again the biggest movers. Unfortunately, that movement was once again downward.
Equity long/short hedge funds tracked by the Dow Jones indexes fell 1.99% in July, cutting managers' year-to-date returns to 0.15% following three successive months of losses. It has been a tough summer to be a long/short equity hedge fund—it declined 1.51% in June Previous HedgeWorld Story and 3.53% in May Previous HedgeWorld Story, more or less erasing the 5.67% gains posted in the first quarter, when equity long/short was the top-performing strategy.
Better news came from the equity market neutral camp, posting the month's strongest growth with a 1.1% increase. Year-to-date the strategy has returned 4.35%, following gains of 1.83% and 1.35% in the first and second quarters, respectively.
Convertible arbitrage managers returned 1.02% in July, bringing their year-to-date total to 6.44%. Merger arbitrage gained 0.62% for the month and is up 5.66% year-to-date. Distressed securities, although returning only 0.59% in July, leads the indexes' year-to-date results with 8% so far in 2006.
Event-driven hedge funds continued a slide that began several months ago, losing 0.14% in July following gains of 1.18% for the second quarter and 4.08% in the first. Year-to-date the strategy has returned 5.22%.
Although results were not stellar, overall the Dow Jones Hedge Fund indexes outperformed their benchmarks. While the Dow Jones Corporate Bond index returned 1.57%, the Dow Jones Wilshire 5000 fell 0.12% on a float-adjusted basis, and the Dow Jones World Total Market index fell 1.68%.
-HedgeWorld.com-
Posted by su at 2:29 PM | Comments (0)
August 7, 2006
Fund of fund the best hedge fund strategy
The growing number of hedge fund managers globally, and the plethora of investment styles, makes it hard for advisers and investment consultants to pick managers for the sector.
RCG Capital Partners managing principal Ken Phillips said the solution was to pick fund of fund products that have done the research on managers and their investment styles and how they can be blended into a single product.
“There are more than 8,000 hedge fund mangers in the world, but only 10 per cent get 90 per cent of the money,” he told Money Management .
“The public investing in hedge funds has boosted the size of the big players, but size shouldn’t be a comfort zone when picking managers.”
RCG runs fund of fund hedge funds and is in Australia to talk to Allco Finance Group about launching a new fund for Australia. The fund of fund product will be launched around September.
Phillips said hedge fund managers are there to exploit the inefficiencies of the markets, but once these inefficiencies have been arbitraged, then the manager moves on.
“The fundamental process of a hedge fund manager is to develop Alpha returns not Beta,” he said.
“The role of a fund of fund manager is to build a portfolio of managers that have specific targets and different skills that can deliver Alpha.”
Of course, there are people that say fund of fund managers are just another layer in the investment process that adds another fee.
Phillips argues the skills of a fund of fund manager are to wade through 1,000s of hedge funds and identify the best managers that will execute the mandate.
“It is a very dynamic process and in every portfolio there will be a 15 to 20 per cent turnover of managers in a year,” he said.
Philips said managing a fund of fund is a full time job rather than just selecting a few managers and then walking away.
“What a fund of fund manager does is to deal with managers who screw up and replace them with similar managers to keep the product true to its mandate of positive returns,” he said.
“It is the value proposition of what I do.”
What RCG is also looking for is consistent performance. It wants to avoid the manager that achieves a 20 per cent return one month and a negative 20 per cent return the next.
“We don’t always take the top manager in a sector as you win in this business by not losing,” Phillips said.
“We want managers who can consistently generate Alpha, and that is down to a selection skill by the manager.”
-Money Management-
Posted by su at 9:58 AM | Comments (0)
August 4, 2006
July: was it up or down for hedge funds?
Depending on which index you follow, July could have been either good or bad.
Dow Jones Hedge Fund Benchmarks Index reports that five of six strategies were in positive ground as the month ended, while Hedge Fund Research’s investable index was reportedly in worse shape in July than in June.
According to Financial News, about two-thirds of HFs reporting to one investor were negative by mid-July, with managed-futures funds the big loser. Prime brokers, says FN, are bracing for a third consecutive down month, with long/short equity funds off 1% and global macros down 2%, and bankers are predicting that three negative months is no charm and will result in a slowdown of flows into hedge funds. On the other hand, Dow Jones’ index found convertible arbitrage rose 1.1%, merger arbitrage up 1%, distressed securities increasing 1%, event driven up 0.2% and equity market neutral climbing 1.4%, while long/short equity continued its downward spiral, losing 1.2%, bringing its year-to-date return to a paltry 0.2%.
-Institutional Investor-
Posted by su at 11:27 AM | Comments (0)