10 Aug 2010
Investcorp started in 1996 with a proprietary investment of $250 million. Today, Investcorp’s hedge fund business manages nearly $5 billion. Our business is well diversified with 18% of total AUM in fund of funds, 48% in customized accounts, and 34% among our five single managers. In terms of client type, over 90% of client assets are from institutional clients globally.
For Investcorp’s hedge fund business, the post-crisis period (Jan 2009-present) was one of our best on record – both in terms of investment performance and asset growth.
Investcorp's hedge fund business includes a number of multi-strategy and single strategy products. Over time, our fund of funds products have exhibited strong performance – our largest fund of fund product was a top-quartile performer in 2009 relative to peers.
Additionally, the last 18 months was an excellent period for our single manager business. A hypothetical equal-weighted portfolio of managers was a top decile performer in 2009, versus industry peers. Since inception, all five managers delivered above-median performance, and three out of five managers delivered top-quartile performance.
One of the key global trends we have seen in recent years (that has been accelerated in this post-crisis period) has been the preference of large institutions to invest in hedge funds through customized accounts. These investors typically have specific requirements in terms of risk level, liquidity, strategy exposures and benchmarks. Furthermore, these institutions demand a high level of transparency and operational control. These objectives are best met through customized accounts.
Investcorp launched its first customized portfolio for a US institutional investor in 2006. Since then, our customized account clients have included some of the largest pension plans in the US and some of the leading Gulf sovereign wealth funds, pension plans and insurance companies. Currently, we have nearly $2.3 billion in customized accounts.
During a period when many in the hedge fund industry saw huge declines in AUM or indeed went out of business altogether, Investcorp’s Hedge Fund Group proved to be a clear winner.
o We raised almost $2 billion over the past 18 months.
o Overall hedge fund assets stand at approximately $5 billion, including nearly $1 billion in proprietary assets.
Investcorp believes the lasting impact of this crisis is an acceleration of the trend towards institutionalization of the hedge fund industry and convergence with its own approach to hedge fund investing.
With a focus on transparency and sophisticated risk management, portfolios on our managed account platform added significant value over benchmarks. Furthermore, Investcorp did not have exposure to Madoff and did not put up gates or suspend redemptions during the 2008 crisis. Since 1998, Investcorp has set-up nearly 80 managed accounts across the range of hedge fund strategies and we are currently in the process of further increasing their share within portfolios.
Looking back over the past 18 months, Investcorp’s proprietary research helped us to identify market phases coming out of the market crisis.
Initially, after the Lehman Brothers collapse, when the market experienced a dislocation due to liquidity driven events, Alpha research led us to (correctly) predict that relative value and distressed strategies would be in-favor. We over-weighted these strategies and they helped to drive the out-performance of our portfolios over the past year.
Quantitative analysis has been a key aspect of our investment process since inception in 1996. Investcorp began a formal research group in 2003 (internally called the ‘Alpha Project’) to systematically study hedge fund strategies, identify drivers of their performance and develop a framework for better evaluating hedge fund managers and allocating capital to strategies.
The research generated by the Alpha Project is now a core element of our investment process driving Asset Allocation and Manager Selection.
Outlook
From the beginning of 2010, we believed that financial markets would struggle to make significant headway as they fret about conflicting growth paths of self-sustainable recovery and ‘double-dip’ recession. We believed that in either outcome, risk assets would struggle – through monetary and fiscal tightening in the first scenario and rising risk premiums in the second.
We believed that investing in 2010 would be much more nuanced, as investors would have to pick individual investment themes and, importantly, time their entry and exit into these investment themes as volatility is expected to remain high. Put another way, we predicted investing in 2010 would be more about generating returns from ‘alpha’ than ‘beta’.
Our outlook has not changed. We continue to believe that ‘beta’ driven investments will struggle, delivering high volatility with low return. The cyclical economic and financial market upswing generated by the extra-ordinary measures taken by governments and central banks in the immediate aftermath of the crisis is now fading. Growth is slowing down under the weight of secular pressures of excessive debt and weak consumption in the West.
For Investcorp’s hedge fund business, the post-crisis period (Jan 2009-present) was one of our best on record – both in terms of investment performance and asset growth.
Investcorp's hedge fund business includes a number of multi-strategy and single strategy products. Over time, our fund of funds products have exhibited strong performance – our largest fund of fund product was a top-quartile performer in 2009 relative to peers.
Additionally, the last 18 months was an excellent period for our single manager business. A hypothetical equal-weighted portfolio of managers was a top decile performer in 2009, versus industry peers. Since inception, all five managers delivered above-median performance, and three out of five managers delivered top-quartile performance.
One of the key global trends we have seen in recent years (that has been accelerated in this post-crisis period) has been the preference of large institutions to invest in hedge funds through customized accounts. These investors typically have specific requirements in terms of risk level, liquidity, strategy exposures and benchmarks. Furthermore, these institutions demand a high level of transparency and operational control. These objectives are best met through customized accounts.
Investcorp launched its first customized portfolio for a US institutional investor in 2006. Since then, our customized account clients have included some of the largest pension plans in the US and some of the leading Gulf sovereign wealth funds, pension plans and insurance companies. Currently, we have nearly $2.3 billion in customized accounts.
During a period when many in the hedge fund industry saw huge declines in AUM or indeed went out of business altogether, Investcorp’s Hedge Fund Group proved to be a clear winner.
o We raised almost $2 billion over the past 18 months.
o Overall hedge fund assets stand at approximately $5 billion, including nearly $1 billion in proprietary assets.
Investcorp believes the lasting impact of this crisis is an acceleration of the trend towards institutionalization of the hedge fund industry and convergence with its own approach to hedge fund investing.
With a focus on transparency and sophisticated risk management, portfolios on our managed account platform added significant value over benchmarks. Furthermore, Investcorp did not have exposure to Madoff and did not put up gates or suspend redemptions during the 2008 crisis. Since 1998, Investcorp has set-up nearly 80 managed accounts across the range of hedge fund strategies and we are currently in the process of further increasing their share within portfolios.
Looking back over the past 18 months, Investcorp’s proprietary research helped us to identify market phases coming out of the market crisis.
Initially, after the Lehman Brothers collapse, when the market experienced a dislocation due to liquidity driven events, Alpha research led us to (correctly) predict that relative value and distressed strategies would be in-favor. We over-weighted these strategies and they helped to drive the out-performance of our portfolios over the past year.
Quantitative analysis has been a key aspect of our investment process since inception in 1996. Investcorp began a formal research group in 2003 (internally called the ‘Alpha Project’) to systematically study hedge fund strategies, identify drivers of their performance and develop a framework for better evaluating hedge fund managers and allocating capital to strategies.
The research generated by the Alpha Project is now a core element of our investment process driving Asset Allocation and Manager Selection.
Outlook
From the beginning of 2010, we believed that financial markets would struggle to make significant headway as they fret about conflicting growth paths of self-sustainable recovery and ‘double-dip’ recession. We believed that in either outcome, risk assets would struggle – through monetary and fiscal tightening in the first scenario and rising risk premiums in the second.
We believed that investing in 2010 would be much more nuanced, as investors would have to pick individual investment themes and, importantly, time their entry and exit into these investment themes as volatility is expected to remain high. Put another way, we predicted investing in 2010 would be more about generating returns from ‘alpha’ than ‘beta’.
Our outlook has not changed. We continue to believe that ‘beta’ driven investments will struggle, delivering high volatility with low return. The cyclical economic and financial market upswing generated by the extra-ordinary measures taken by governments and central banks in the immediate aftermath of the crisis is now fading. Growth is slowing down under the weight of secular pressures of excessive debt and weak consumption in the West.
