New Zealand has a small but perfectly formed hedge fund industry. With nearly 30 managers signed up to NZara, the New Zealand Absolute Return Association
, they can proudly point to two years of outperformance against global hedge funds, CTAs or equity markets.
It is possible they look good over the two years of their existence because the index is largely made up of global macro funds, which have done well in that time. Anthony Limbrick, chief executive of Pure Capital and guiding light of NZara, claims Kiwi hedge funds do well because you have to be good to survive so far from the centre of things. The challenge is worth meeting, however, because the lifestyle is so good, he says. For dedicated hedgies, the chance to run money while living in beautiful surroundings near home and family is very attractive.
The only question is, if it’s so lovely in New Zealand, why are there so many Kiwis in London?
Lord Turner warned hedge funds might become a target in Europe
Even the European Commission’s own experts think it is going too far with its proposals for regulating the hedge fund industry.
Jaques de Larosière, author of an influential report on financial supervision, told a seminar in London the Commission’s draft directive on alternative investment management went much further than he had recommended. The report came to the conclusion hedge funds were not a systemic issue, but the draft directive proposes regulating some aspects of alternative funds even more tightly than Ucits, the retail investment vehicle.
As leader of a ‘High Level Group’, one might expect M. de Larosière’s words to have some weight.
The seminar, hosted by Business for New Europe, also heard from Lord Turner, chairman of the UK’s Financial Services Authority, who warned hedge funds might become a “target” in Europe, and Lord Myners, the UK financial services secretary to the Treasury, who called the directive “flawed”.
The Alternative Investment Management Association welcomed these comments – as well it might!
UK is bringing out its big guns
The UK is bringing out its big guns in an attempt to shoot down the European Commission’s proposed rules for alternative investment fund managers.
In Monaco, Dan Waters, asset management sector leader at the Financial Services Authority, fired broadsides at several aspects of the directive in a speech at the Fund Forum conference.
I'm with Mr Stupid
Is there a difference between a transactional business culture, like that of investment banks, and a fiduciary culture, such as asset managers are supposed to have?
According to one hedge fund manager of my acquaintance, this is a key distinction when selling products, because the fiduciary responsibility means you’re going to have to put up with your clients for the life of the investment.
“The very last thing you want is an investor who doesn’t understand what they’re getting. They’re the ones who are on the phone to you every week with all sorts of stupid questions.” Since this manager is deeply intolerant of stupidity, he has been careful to ensure his products were only ever sold to people who really understood them.
This does not seem to have been a guiding light for many investment managers, however. Are they more tolerant of stupidity or have they simply failed to understand the implications of their fiduciary responsibility?
Mark Dampier is enjoying the move by hedge funds into the retail investment market via Ucits III. The head of research at Hargreaves Lansdown was wary of absolute return funds when they first appeared. I spoke to him when BlackRock (then Merrill Lynch Investment Management) launched its Absolute Alpha fund in 2006, and he said he would wait to see if it worked before making any judgements.
Lower risk funds “have to be bang on right”, he said at the time.
Now, he is a fan, with the caveat that the absolute return sector is a mixed bag and some funds are difficult to analyse. The BlackRock fund “did what it said on the tin”, he reckons.
It’s time the asset management industry held boards to account for not listening to what fund managers are saying over corporate governance issues.
Ms Kleinworth (the rat) goes short on Treasuries
Fed up with paying wildly expensive and highly educated mathematicians to man your trading desk? Worried quants are destroying the financial system (again) but unsure how to replace them? Rat Traders has come up with an economic and efficient solution, available from any zoology department, pet shop or nearest sewer.
Vulture funds... face having their wings clipped
Flush with their success in shepherding the global economy in recent years, the planet’s munificent politicians are anxious to spread their wings and treat yet more arenas of human endeavour to their undoubted magnificence.
Hedge funds and private equity are both set to benefit from “improved” regulation, courtesy of the searing insights of our political masters, and now it appears politicians in both the US and UK are anxious to clip the wings of vulture funds.
For the uninitiated, these vehicles specialise in buying up the sovereign debt of impoverished or recalcitrant developing nations that have defaulted, or are perceived to be likely to do so, at a chunky discount to face value.
Hedge funds have spent most of the past nine months cowering behind the sofa as a horror show of mass redemptions dances across their TV screens.
Every so often they peer around the corner in the hope it is safe to come out from hiding and start the serious business of making money once again.
Fresh figures today from HFR, those diligent statisticians of all things hedgie, offer some insight into whether the closing credits of the horror flick are rolling, to be replaced by film of lambs gambolling in the spring sunshine. But only a little.
‘There’s none so blind as them that will not see’ was the insightful, if ungrammatical, comment of a childhood mentor about those who refuse to admit adverse reality.
The line sprang to my mind when speaking to James Hatchley, a managing director of Freeman & Co, an M&A advisory consultancy. On most other topics, Mr Hatchley expressed reasonable and sensible opinions, but when it came to the subject of funds of hedge funds, an area his firm earns a lot of revenue from, he seemed to be in a different world.
“We see funds of [hedge] funds as a net beneficiary of the current crisis,” he said. “The market is entering into a winners and losers phase.”
While many might agree with the second statement, I would have put funds of hedge funds generally firmly into the losers’ basket. When questioned more closely about what the benefit might be, he predicted “fewer, bigger, better funds of funds”.
This may be a win for the end-investors, those that still have any money to invest and have the nerve to entrust it to funds of hedge funds, but it is presumably bad news for the many funds of hedge funds not fitting this description.