Previous issues - The Hedge Fund Journal

March 2011

New data on hedge fund launches versus closures tells a relatively bullish story. Fund launches tracked by Hedge Fund Research totalled 935 in 2010, marking the best year for start-ups since 2007, when nearly 1,200 new hedge funds launched. Liquidations were also down, totalling 743 over the year and the fewest since 2008 when 778 funds liquidated in the fourth quarter alone.

This improving picture is also reflected in some of the findings of the 2011 Credit Suisse survey of hedge fund investor appetite and activity. The overall picture that emerges from the survey is one of modest optimism and relative stability. Launch activity came in higher than investors had expected in 2010 but this level of launches is now expected to be maintained in 2011. More positive still is that the survey participants – 600 investor groups with $1.2 trillion invested in hedge funds – expect industry assets to rise about 18% (about half coming from performance and half from inflows) over the year to $2.31 trillion. But even with such healthy demand growth, the survey found that nearly half of investors expect to be able to negotiate on fee terms.

February 2011

Whisper it but hedge funds appear to be making something of comeback. Assets under management are getting close to where they were before the financial crisis. And a cursory glance at the Dow Jones Credit Suisse Hedge Fund Index shows that most strategies made double digit percentage gains in 2010. Now a new survey from SEI and Greenwich Associates has found that a majority of institutional investors are again taking a look at allocating to hedge funds.

The report – Institutional Hedge Fund Investing Comes of Age: A New Perspective on the Road Ahead – shows that 54% of institutions (based in the North America, Scandinavia and the UK) plan to increase allocations to hedge funds in 2011. This is over three times the 15% that were considering increasing allocations to hedge funds one year ago. It seems that after the fireball conditions of 2008-09 investors have collectively decided to give hedge funds another chance. It is very unlikely that this will develop in to a blank cheque, however.

December 2010-January 2011

By most accounts hedge funds have continued to recover from the 2008-2009 debacle. Assets have risen to near $1.8 trillion on HFR’s reckoning and there is considerable expectation that they will return to the pre-crisis high of $2 trillion by the end of 2011. What’s more, new funds are launching both in the offshore and UCITS sectors, while evidence is emerging that seeding activity is picking up.

But before getting too excited it is probably best to consider more critically what has really happened during 2010. Though assets have risen, net inflows, with the exception of some so-called mega managers, are proving to be elusive. The trickle of new allocations has, in the main, been offset by redemptions. Performance, however, is reasonable, with the Dow Jones Credit Suisse Hedge Fund Index coasting to a 2010 gain of 8% with returns dispersed across most strategies. It is obvious that negative real interest rates and extreme volatility pose a severe investment challenge for even the most hardened of managers. What’s more, this environment looks set to continue.

November 2010

'The Gathering Storm' published by DV Books is a welcome contribution to the literature analysing the global financial crisis. It is a collection of essays commissioned by Lee Robinson, co-founder of Trafalgar Asset Management, and Patrick Young, who is the principal of Kolonna Asset Management.

The book’s starting point is that a number of the best financial minds foresaw the disaster that struck world markets in 2008. Thus we get in the opening chapter a very cogent account by James Ferguson, chief strategist at Arbuthnot Securities, of the build-up to the global banking crisis. There is much to recommend in this clear dissection of why financial institutions went to the abyss and how they are still perched there. As for an exit date from the credit crunch Ferguson’s best estimate drawn from looking at past crises is sometime around 2014.

October 2010

It gets remarked that everything of great importance in history occurs twice: the first time as tragedy, the second as farce. And so it is with the Alternative Investment Fund Manager Directive (AIFMD). In 2009, the European Commission issued a proposed directive which showed misunderstandings of near-tragic proportions for asset managers. After 18 months of mind-numbing negotiations to detoxify AIFMD, French Finance Minister Christine Lagarde proclaimed the need to reopen the entire process. A farcical outcome given what went before.

For the current issue, we visited Cheyne Capital to learn how the firm has evolved its approach to credit investing. There are also interviews with GLG's Pierre Lagrange to coincide with the 10th anniversary of the GLG Long-Short Equity Fund and with Morgan Stanley’s head of fund-linked products, David Armstrong, about its new UCITS hedge fund platform.

September 2010

Several firms came to the fore in our Europe50 survey of the continent’s leading firms conducted in association with Newedge Prime Brokerage Group. Brevan Howard Asset Management and BlueCrest Capital Management have faired extraordinarily well in responding to tough market conditions and generating returns across a number of strategies as different as rates, currencies, futures and emerging markets. The demand among investors for matching risk management expertise with true alpha generation has seen both firms make substantial gains in the client funds they manage.

The Europe50 survey also found that managed futures operators – Man AHL, Winton Capital Management and Netherlands-based Transtrend – retained three slots in the top 10 by assets under management. Though commodity trading advisor performance as a whole has trended downwards for much of the past year, the strategy’s record through the credit crisis in risk management and performance generation continues to attract investors. Meanwhile, Swedish firm Brummer & Partners mixed managed futures, fixed income-relative value and long/short equity to strong effect, nearly doubling assets under management and rising to 9th in the survey. Long/short equity still has its backers, however, with Lansdowne Partners rising to 5th in the Europe50 on strong gains in funds managed, while GLG Partners, down to 8th, underscored the value of a strong equities franchise with its pending $1.5 billion acquisition by Man Group.

July-August 2010

The Dodd-Frank Financial Reform Bill that secured US Senate passage in mid-July is far reaching, but it will be at least a year before many of its provisions are fleshed out by regulators. And it will take several additional years for these new rules to become applicable to banks.

Turning to our July/August issue, we interview Tony Chedraoui and take a close look at his event-driven hedge fund Tyrus Capital – one of 2009’s biggest launches. We also get John Bennett to discuss the approach to equities investing that he’s brought to Gartmore. As well, we publish the highlights from our recent conference on Harnessing the Potential of UCITS Hedge Funds.

June 2010

There has been much talk about consolidation in the hedge fund industry. But until recently only the occasional transaction had taken place. Suddenly, however, the deal flow has become significant. More than one hedge fund manager has remarked that 2009 was essentially a year of recovery and restructuring across the sector. Now it seems that 2010 could be the year of the deal.

In this issue, Contributing Editor Hamlin Lovell documents Tomorrow’s Titans. This survey, sponsored by Ernst & Young, pulls together 40 leading hedge fund managers whom we expect to set the pace in investment management during the next decade. We also have an exclusive interview with legendary investor Martin Hughes, the founder and chief investment officer of Toscafund, about the steps the firm has taken to prepare for its next phase of growth.

May 2010

Changing investor priorities continue to underline the evolution of structures in the hedge fund industry. As institutional investors allocate more assets to absolute return funds and other alternative assets, the need for better terms on transparency, regulation and liquidity from hedge fund managers will grow. The response to these demands will vary for both offshore and onshore funds. For now, however, UCITS III absolute return funds look to be an area of strong growth.

In this issue, our sister publication UCITS Hedge offers valuable guidance to this emerging sector via the green bordered pages in the centre of the magazine. The UCITS Hedge-Tomlinson Index experienced a true month of two halves in April but managed to end the period up 0.69%. See the April Performance Update for the latest component indices and commentary. We also have an interview with Deutsche Bank’s UCITS managed account platform team.

April 2010

It is possible that the outcome of the May 6 UK general election will help to backstop London’s future as an alternative investment centre. Yet regardless of who wins, it is understandable and likely that other, very pressing, financial priorities will occupy the incoming government’s attention. Against this backdrop, it is heartening to recall that the UK hosts the dominant cluster in the global managed futures sector. Even with the departure of Leda Braga and her systematic team at BlueCrest to Geneva, London remains the home of Man Group affiliate AHL as well as Winton Capital and a host of mid-sized players such as Aspect Capital. These firms and dozens of other players have thrived during the financial crisis as investors embraced their non-correlated, liquid trading strategies. Our cover feature looks at this and at some new CTAs, notably Quantitative Investment Management in the US. Elsewhere, we hear from portfolio manager Galia Velimukhametova about the opportunities that the GLG European Distressed Fund is offering investors at this point in the credit cycle.

March 2010

Our cover feature shifts the focus across the Atlantic. The Second Edition of our US50, published in association with Newedge Prime Brokerage Group, has eerie parallels with our mid-2008 survey. The top two firms by assets – JPMorgan Asset Management and Highbridge – still occupy those lofty slots and were among a select few to boost AUM since the last survey. Even with the rebound of 2009, however, the threshold to be in the US50 fell to $6.5 billion from $9 billion in our inaugural ranking. We also look into one of the big success stories in the hedge fund industry: BlueCrest Capital Management. Its skilful combining of discretionary and systematic trading strategies in a straightforward risk management framework has generated handsome returns and attracted new investors. Our interview with Andrew Dodd, the chief financial officer, sheds light on both this and the attributes of the AllBlue multi-manager fund.

February 2010

In our February 2010 issue, with support from PricewaterhouseCoopers, we have conducted a survey to chronicle and celebrate 50 Leading Women in Hedge Funds. Contributing Editor, Philippa Aylmer, spearheaded our global survey of talent and accomplishment among women in hedge funds. We think the package offers highly engaging reading for people across the hedge fund industry. Elsewhere, Consulting Editor Simon Kerr reports on Credit Suisse and its unique approach to investing in insurance linked strategies. In addition, we feature a close look at the investment strategy of ATP, the Danish state pension fund, as it looks to begin allocating to external hedge fund managers.

January 2010

Looking into 2010, one area that is bound to see growth is fund launches. Hedge Fund Research data shows that launches bounced slightly in the third quarter of 2009. There is anecdotal evidence that more new funds were being planned even before Chancellor of the Exchequer Alistair Darling (followed by his French counterpart Christine Lagard) unveiled a one-time surtax on bankers’ bonuses. With all launches needing seed capital it is a good time to take a close look at the seeding arm of Financial Risk Management, FRM Capital Advisors. Elsewhere, we include a series of year-end interviews featuring analysis from leading industry figures of what’s gone before and what is on the horizon for hedge funds in 2010.

November-December 2009

With The Hedge Fund Journal now in its sixth year, we are adapting our focus to train it a bit more closely on the institutional investor community. It is certainly true that institutional investors are increasingly driving asset flows, governance and compliance policies in the hedge fund industry. To develop some perspective on this, we look at the Universities Superannuation Scheme plan to invest £1.3 billion in single manager hedge funds over the next couple of years. We also profile several interesting funds in this issue: Pharo Management’s macro programme, CQS Diversified and Asian specialist Dalton Investments.

October 2009

The recovery in markets and the renewed confidence in hedge funds provides an appropriate moment for Gartmore Investment Management to celebrate, in November, 10 years of running hedge funds. Our cover story features a visit to the firm’s Fenchurch Place headquarters to interview star managers Roger Guy and Guillaume Rambourg. Elsewhere, Simon Kerr offers new insight in the second part of his assessment of the hedge fund industry one year on from the Lehman collapse. We also have an in-depth interview about emerging market investing with Sanjiv Duggal, India’s biggest equities investor and manager of the HSBC India Alpha Fund. As well, we feature some exceptional special contributions. Richard Tomlinson investigates tracking error and performance lag in managed accounts, while Guido Bolliger of Olympia Capital Management looks at the business and operating models of hedge funds post-Lehman.

September 2009

Despite the closure of numerous firms and the tough investment climate, Consulting Editor Simon Kerr shows that there is conditional resilience in the fee structures that hedge funds can charge. The conditions, of course, are that a hedge fund needs to perform and have a robust business model to keep a preferred fee structure intact.

Also this month we publish a special section exploring what Cyprus is offering the alternative funds sector. Finally, our cover profile features an interview with Paolo Basilica and Fabio Bariletti, respectively the chief executive and chief investment officer of funds of funds at Kairos Partners, Italy’s leading hedge fund group. Their views on the expanding UCITS sector, the travails faced by Swiss banks and what they deem to be the relatively unobjectionable technical provisions of the AIFM Directive make interesting reading.

August 2009

This issue includes the 2nd edition of our GLOBAL50 Funds of Hedge Funds ranking, produced in association with Newedge Prime Brokerage. Assets under management at most groups have fallen by around one-third but some have suffered much greater declines. But amid any downturn some firms prosper and it is no different with funds of funds. We think the survey will provide very interesting reading. We also have two firm profiles with extensive strategy analysis. Our cover story features a visit to global macro giant Brevan Howard Asset Management and an absorbing interview with co-CEO Nagi Kawkabani. Going a bit further afield, we visit Altis Partners, a Jersey-based CTA that has combined strong asset growth with stellar returns for investors.

July 2009

The first-half performance of most strategies marks a welcome uplift for hedge funds. Early estimates from the main index providers show fractional increases in June, taking first-half percentage gains into the high single digits. After May’s strong performance, the latest figures show managers are doing what investors want in providing protection when downside market pressure is prevalent.

This is a key principle in the alignment of investor and manager interests, which itself was a key theme at GAIM in Monaco in mid-June. On one level, it means aligning performance fees with realisations for investors over an extended period of, say, three years or perhaps longer for some strategies. On another level, it means providing transparency into how hedge funds pay compensation to portfolio managers and general partners. Clearly, there is plenty here to occupy managers and investors for some time to come.

May-June 2009

The best thing about editing a magazine about the hedge fund industry is getting the opportunity to meet managers and see first hand the innovation that breeds success. Our cover profile of Armajaro Asset Management is one such tale. Founded 11 years ago on a base of coco trading and writing structured notes, Armajaro is now a vertically integrated commodities player and an emerging hedge fund operator, entering the ranks of our EUROPE50 rankings earlier this year. Elsewhere, Simon Kerr reporis from Paris on Capital Fund Management. CEO Jean-Pierre Aguilar offers a compelling story about his own origins as a computer scientist and how CFM’s commitment to scientific and mathematical research has helped it join the ranks of the European hedge fund elite.

April 2009

The cautious recovery in markets this spring provides some much needed stability for the hedge fund industry after two quarters of upheaval. Following many months of investors departing from the industry, the uptick, mainly in commodities and equities, coincides with a substantial slowing of net redemptions from fund managers. Indeed, there is an emerging consensus that the second quarter may be the bottom of the trough and provide a base to begin rebuilding assets under management in the second half of 2009.

March 2009

After the fall, comes resurrection. But before that comes judgement day. For hedge funds, the next stage in this process will occur in early April when London hosts the G20 Summit at which a host of issues relating to the investment management and banking industries will be debated.

As is made plain in our interview this month with Sally Dewar, managing director of the wholesale division of the Financial Services Authority, efforts are occurring on several fronts to develop a global regime on the disclosure of short selling activity. Political pressure may see this process extended to cover hedge fund operations, perhaps setting up formal provisions to govern risk management or capital adequacy provisions. More practical would be to encourage other jurisdictions to follow the FSA’s credible lead in hedge fund oversight of the biggest British-based firms and universal manager registration.

February 2009

The events of 2008 may be safely behind us, but the fall-out from what happened continues to linger. Encouragingly, anecdotal evidence is showing that the improvement in returns for most strategies in December, January and early February is helping to ease redemption pressure. From this point it may be possible to plot new inflows coming into the industry in the second and third quarters of 2009. Even if that return to relative health is achieved – forget full-blown rude health for now – the hedge fund industry will remain under pressure.

December 2008/January 2009

As The Hedge Fund Journal went to press on the eve of 2009, yet another storm was breaking over the industry. The arrest of Bernie Madoff, founder of Madoff Investment Securities, has left much of the hedge fund investing industry speechless with shock. The level of trust Madoff has been able to inspire has been amazing. This seems to have started with wealthy individuals and private banks and finally led to institutional allocations from banks and funds of funds managers; the sort of serious institutional capital that many hedge fund managers only dream about.

November 2008

We can all recognise the value hedge funds bring to the market, but forced de-leveraging has upset markets in recent weeks, and is leading politicians and G20 regulators to reach for their guns and badges. In this issue we feature feedback from five regulators kind enough to provide some comments on the issues currently affecting the industry. We also do some crystal ball gazing of our own in anticipation of what is generally accepted to be a veritable wave of new regulation and market structures that will sweep the landscape next year.

October 2008

These are volatile times. Hedge fund managers have been telling us for years that, once volatility returns to the market, they will be able to show what they’re made of. Unfortunately, many are now finding out just what extreme volatility means. One European family office manager reported to me, only last week, that several of the funds in his portfolio are closing because it was just getting “too hard to make money.” But aren’t these times what hedge funds were born for? Or have there simply been too many long only managers riding the bull market up?

September 2008

It was thought that Asia had come of age. Until recently that is. While the Asian markets continued to expand, the developed economies were suffering the shock waves from the sub-prime crisis. Finally, Asia was able to look after itself. Investors increased their allocations to emerging market strategies and the returns were encouraging. Yet with mounting political tensions in countries such as Pakistan, Thailand and Malaysia and shares in most Asian markets now in decline, it looks as if Asia has lost some of its golden glow.

July - August 2008

The age of the ‘Great Moderation’ is over. The years of cheap and readily available credit are no more and one year on from the credit crunch, the outlook is distinctly bearish. Hedge fund performance year-to-date is flat (it declined 0.64% in June according to the Hennessee Hedge Fund Index), inflows have almost ground to a halt (the smallest quarterly increase since the industry experienced a net redemption in the fourth quarter of 2005) and the environment for start-ups is the toughest it has ever been. Welcome to the hedge fund industry of 2008.

June 2008

When is an asset class not an asset class? When it’s a commodity, says a small but growing band of critics. As commodity prices are beginning to affect consumers, questions are being asked as to how much these rocketing prices have been caused by speculation.

“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance which led to the stock market crash of 1987,” said George Soros in a recent statement to the US Senate Commerce, Science and Transportation Committee. Soros stated that there was a strong case against institutional investors pursuing a commodity index buying strategy. “In both cases, the institutions are piling in on one side of the market and they have sufficient weight to unbalance it,” he explained. While Soros agrees that in the oil market at least, there is unlikely to be a crash, his theory is that the characteristics of a bubble in the making are present: for example, oil spot prices have risen above the marginal cost of production and far-out, forward contracts have risen much faster than spot prices.

May 2008

Despite the doom and gloom, investors have not given up on hedge funds yet.

According to a recent survey conducted by Deutsche Bank, only 7% of investors felt bullish about 2008, but over 40% said that they were bullish about 2009. Whilst HFR has reported the lowest inflows of any first quarter in four years (US$15.6 billion), the Deutsche Bank Alternative Investment Survey found that in spite of all the bad news, investors are planning to invest US$200 billion in 2009, and many are now prepared to accept longer lock-ups.

These findings confirm what our industry has known for a very long time, namely that good and proven managers will continue to attract investors, and that hedge funds are indeed an essential component of the asset allocation landscape.

April 2008

The hedge fund industry wields significant influence in financial markets therefore it is right that the mainstream media, and I do not include the trade press in this group, write about our industry.

But why does a relatively small group of financial journalists and their editors, working in London for the likes of the Financial Times, the Daily Telegraph, the Times, the Evening Standard and the BBC do such a poor job of reporting and commentating on the hedge fund industry?

March 2008

Pride comes before a fall. This saying seems particularly apt in the case of Peloton Partners. It was only two months ago at the EuroHedge Awards that Ron Beller walked away with his credit award. Within weeks, the Peloton ABS fund had collapsed. As the effects of the credit crunch continue to be felt, the rest of the hedge fund industry can only look on with a mix of horror and fascination.

February 2008

The last month has been described as probably one of the most volatile since 9/11. With the hangover of the subprime kicking in, the prospect of banks facing further write-downs and mounting concerns over the US trade deficit, not even the Federal Reserve’s biggest rate cut since 1984 could ease the tension in the markets this month.

So where does the hedge fund industry stand amidst this turbulence? Those who feature in the pages of The Hedge Fund Journal are upbeat about the opportunities but warn that it will be only the highly skilled that will see the returns. There will be no room for laggards this year.

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