-
October-November 2011 -
September 2011 One of the leading bloggers of the financial commentary universe is a guy from Thomson Reuters named Felix Salmon. He’s a genuine superstar and a must read among the astounding array of news and information Reuters publishes. Rarely, however, has the esteemed news service fallen into the trap of publishing outright disinformation. Until now, that is. Salmon has some pretty decent criticisms of funds of hedge funds, specifically, and the hedge fund industry more generally. In this respect, he’s far from being alone. But it is important to correct a few misleading assertions Salmon made in a recent column and challenge his proposition that the mass affluent shouldn’t invest in hedge funds.
"Let’s grant, for the sake of argument, that “there is no shortage of excellent hedge funds to choose from”. It’s a long, long way from there to saying that there’s any overlap at all between the set of excellent hedge funds, on the one hand, and the set of funds which come in registered vehicles and offer daily NAVs and daily liquidity, on the other. In fact, I feel quite comfortable in saying that no excellent hedge fund offers daily liquidity."
Where to begin? -
July-August 2011 The Eurozone has rallied around Greece to forestall a sovereign default from happening this summer. But the risk of a policy mistake or political stalemate breeding contagion that might spread beyond Greece, Ireland and Portugal to Italy and Spain remains high. More worrisome, is that all of this is unfolding as the Eurozone’s economic cycle looks to be losing momentum with growth in the northern core declining in the face of headwinds from a strong euro, high debt, a weak America and slowing growth in emerging markets. The UK, too, is seeing the economy flat line even though the decline of sterling has provided some relief.
The bright note in all of this is that hedge funds continue to attract record inflows from investors around the world. Hedge Fund Research reports that the $62 billion in new funds allocated to hedge funds during the first half marked the best half for inflows since the second half of 2007. Alarm over European and US sovereign debt, combined with falling growth, is driving uncertainty and volatility. For investors, who clearly expect this uncertain environment to persist, investing in hedge funds is a rational investment response. -
June 2011 Over recent weeks, markets have recoiled in fear owing to a significant slowing in US and, to some extent, global growth. Risk aversion among investors has returned. Against this, the price of gold, oil and Treasuries, have firmed. In trading rooms around the world, many portfolio managers are stress testing the potential impact of two crisis scenarios: 1) a form of sovereign default in the eurozone; and 2) a further sharp downturn in US growth.
In either scenario, hedge fund managers would face challenging tests to preserve investor capital. Against the current economic backdrop where interest rates have been near zero many hedge funds have struggled to chalk up performance. The Dow Jones Credit Suisse AllHedge Index is up 2.91% to end-May, with every strategy other than dedicated short bias offering positive performance. Notwithstanding a mixed picture of relatively modest returns and the potential storm clouds hovering over markets, the number of hedge fund launches is gaining ground, while the assets being allocated have soared past $2 trillion for the first time. -
May 2011 Perhaps no asset manager has as much experience of running hedge funds or investing in them as Man Group. For this reason, a recent round table at the firm’s historic (and soon to be vacated) Sugar Quay headquarters by CEO Peter Clarke on hedge fund challenges and opportunities drew a strong turnout.
Clarke’s key message was clear. The well-documented rise in hedge fund assets to over $2 trillion in recent months has been driven primarily by the demands that greater longevity is placing on pension funds. In turn, retirement plans need better risk adjusted returns to meet their liabilities many years into the future. Though high net worth investors are on the up in Asia, their European and US counterparts, who of course funded the industry for so long, remain a declining force. -
April 2011 In the autumn of 2011, RAB Capital’s one time flagship, the Special Situations Fund, run by co-founder Philip Richards, will honour investor redemption requests made nearly three years ago. This marks an important turning point both for RAB, once one of London’s most successful hedge funds, and Richards himself. It will also serve to draw a line under two cardinal errors that cost investors dearly and left the future of the hedge fund group in the balance.
Failing to ensure a liquid structure was the first, and biggest, error made with Special Situations. As an expert investor in emerging natural resources companies, Richards gambled that investors had a sufficiently long horizon for investments in the fund’s hundreds of small cap plays to come good. After all, this was a strategy that returned over 4,000% to its earliest backers in just a few years after the outset of the new millennium. Instead, when the market for large cap stocks collapsed in September 2008, it froze solid for the small cap and private equity-type plays in which the fund specialised. Now, three years later, Special Situations has finally raised enough cash to meet the full claim made by investors accounting for 79% of the fund who want to redeem. - Previous issues
