The 41-page report (useful for investors considering hedge fund investments) covers trends in managed accounts, UCITS hedge funds & fees; and strategies including event-driven; managed futures; active currency; alternatives beta; reinsurance, emerging market currency and volatility.

Highlights;

Only around one-third of outperformance from skill should go to hedge fund managers in the form of fees, with the rest going to the investor.

Well-aligned fee structures should include;

• Management fees that properly reflect the position of the business
• Appropriate hurdle rates
• Non-resetting high watermarks (known as a ‘loss carry-forward provision’)
• Extension of the performance fee calculation period
• Clawback provisions
• Reasonable pass through expenses.

In addition to increased levels of transparency, investors should also look at:

• Liquidity
• Gates
• Side pockets
• Key man clauses
• Initial lock periods.

Details at…

“Hedge Fund Investing – Opportunities And Challenges”.

The 27-page report provides useful comparative statistics on hedge fund performance, volatility and correlations since 1994.

Highlights.  Hedge funds…

1. Have significantly outperformed equities, bonds and commodities on a risk adjusted basis
2. Achieved these returns with considerably lower volatility and Value-at-Risk (VaR) than stocks and commodities, & close to bonds in both categories
3. Were significant generators of “alpha”, creating an average of 4.19 percent per year from 1994–2011
4. Received 28 percent of all investment profits while investors received 72 percent
5. Are important liquidity providers in the markets and provide beneficial effects for price discovery, the efficient allocation of capital, financial stability, shareholder value, diversification and the broader economy.

Details at…

“The Value Of The Hedge Fund Industry To Investors, Markets And The Broader Economy”.

Timothy Cheung, CCM’s founder, said ‘The fund has especially benefited from the phenomenal growth of Macau, China’s only legal gaming market which offers a ‘pure’ play on the China consumption story. Since the first foreign operated casino opened in Macau in 2004, the market has grown six-fold to now be five times the size of its nearest competitor, Las Vegas.’

‘Of the approximately 16 million Chinese visitors to Macau in 2011, close to three-quarters were from just one province, Guangdong, so the market is still only its infancy,’ added Cheung.

Demand from institutional investors for exposure to gaming has been on the rise as the sector has become better understood as a source of both stock-picking alpha and exposure to the Asian consumer.   Cheung has also seen a rise in deal-flow in private equity opportunities related to Asian gaming.

In response to this demand, CCM is developing a long-only gaming fund which will invest in both listed and private equity gaming opportunities. The actively managed fund will target absolute returns of 20 per cent per annum. CCM is currently talking to potential seed investors for the long-only product which could involve a listing on the Hong Kong stock market to tap Asian retail investors.

CCM was founded in 2009 by Timothy Cheung (ex Colonial and Octavian Advisors) and Brian McGlynn (ex Colonial and Commonwealth Bank). Cheung leads the three person investment team while McGlynn oversees strategy and governance.

The firm’s clients include a mix of high-net-worth individuals and a California based family office.   Advertorial.  For more information please contact Timothy Cheung at timc “at” cheungcapital.com or call  +612 9326 7086

In a way, I think there is a basic issue. Most investors these days are nervous. That’s why I have positioned my Triple A business to raise money for very conservative alternative strategies. Kapstream offer an Absolute Return strategy which is debatable as to whether it’s a hedge fund but is active FI and Credit. They target greater than 7% per annum, achieving just under that in A$ with a 1% Standard Dev. That track record spans the GFC and has their worst losing month at -.17%! Their Asian Bond Fund targets 10% with no leverage. Both strategies can go quickly to high cash allocations.

Another client, Ramius Alternative Solutions tailor make portfolios under client designated parameters. A typical Ramius solutions portfolio may have 30% allocated to Replication, 30% to Managed Futures and Macro and the balance in co mingled hedge funds. They do this to adjust to investor fee and liquidity requirements with conservative risk reward targets. Typically in Australia, their clients require portfolios with a 2-5% over Cash returns. This is a completely different world to the $5 million down, $20 million notional equity CTA portfolios that I used to run for wealthy Families when I was at Deutsche Bank back in the 1990’s. The portfolios of CTAs would average between 5-10% per year on the notional but on the cash it was as high as a 20-30% return. Wealthy investors loved that. Don’t ask about the Sharpe, it wasn’t good!!!

So in a changed world it’s not surprising to see that seeders are few and far between. The Hedge Fund Alert article mentions that Blackstone, Goldman Sachs and Reservoir Capital have $3.5 billion between them and that is more than all of their competitors combined. The article mentions firms that have pulled back or exited the business. BRI Partners, Capital Z, Cyan Capital and Jefferies. I used to seed managers at Deutsche. Quite frankly it was a great business. But you needed to include the brokerage as a complete P&L. When I came up with the idea back in the nineties and presented to the Deutsche Board, they gave me approval for a $10 million notional and that if I lost $1.5 million or 15%, I was out the door. Naively I looked at it, as having a bunch of managers, and you found half were long bonds, half were short and you had a few overs and unders. Ultimately the return was about 5% on notional, sometimes higher and the brokerage was about the same. Because you were one of the first to have faith, you ended up with all of their brokerage or most of it. It was a beautiful business.

In Australia, the professional seeders have been very successful. Challenger have just separated their boutique partnerships into Fidante Partners. This rebanding houses 10 boutique funds with AUM of $17 billion. The manger line-up includes Alphinity, Ardea, Bentham, 5Oceans, Greencape, Kinetic, Merlon, Novaport, Wavestone and Kapstream. Westpac’s Ascalon, has also been very successful. Their stable incudes Regal, H3, Canning Park, Helix, Alleron, ATI, Continuum and Arkx. NABInvest and Treasury Group have continued to thrive in testing market conditions. The Australian model differentiator is a combination of Alternative and Traditional Managers. In addition, the managers receive the distribution channel support developed by the respective group owners.

Another issue where I would like to generate debate, is the premise that new managers generate greater Alpha than established managers. With my own money, I would prefer to invest with managers that have been consistently providing returns over long periods of time. I like grey haired managers, ones that have seen multiple cycles. The usual view is that you capture the best returns in the early years prior to the manager getting bogged down with running a firm. I’m not sure about this. Again I prefer to select managers that have seen it all before. I know there is a place for seeders but is it the place for conservative investors? I know the current market environment is not conducive.

Anyway, I’d love to hear other views…

…you can email me at dh “at” tripleapartners.net.

The move follows the integration of ING Investment Management Australia into UBS GAM on 30 March 2012, and the creation of an Australian equities ‘house of boutiques’ structure within UBS GAM.   It also follows the creation of a new global macro hedge fund by former proprietary traders at UBS Australia (see Australian Hedge Feb 2012)

Details at…

“The Future Wealth Report”

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Saxo Capital Markets has launched an Australian office.  It will provide online trading access to global markets for active retail traders and small hedge fund managers.  The firm is headed by Anthony Griffin, CEO. (ex-MF Global)

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Plans by Wilson HTM Investment Group to sell its ‘house of boutiques’ fund business, Pinnacle Investment Management, should reach a ‘formal offers and due diligence’ phase by late March, according to InvestorDaily.  Information memorandums have been released to an unspecified number of potential buyers.  Pinnacle has equity stakes in eight boutiques that together manage $9.3 billion.   The business is 80 percent owned by Wilson HTM.

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The next (quarterly) Australian Hedge Fund Operations Forum will be held in Sydney on 29 March.  Details will shortly be available at www.opsforum.com.au

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Standard & Poor’s Capital IQ will withdraw from the Australian funds research and wealth management market.  From October 2012, S&P’s ratings on managed funds will cease.  Other ratings services such as credit are unaffected.  The decision is due to the managed funds ratings business not being scalable in all of S&P’s operations worldwide.

***

CAIS is opening an office in Sydney. The firm is a New York-based financial technology company providing an alternatives investment platform to the wealth management industry. The Sydney office will be headed by CAIS Managing Principal and Head of Asia Pacific, Jeremy Norton.  The firm currently serves a number of Australian clients, including Evans & Partners and BBY.

Articles by the AFR included;

• Separate coverage of US hedge funds OakTree Capital and Angelo Gordon on their views on the industry and their marketing to Australian investors.
• Profile on Platinum Asset Management.
• Profile on Evergreen Capital Partners.
• Interview with SSARIS Advisors (60 percent owned by SSGA) which is marketing to Australian institutional investors.

The Australian provided an

• Update on Basis Capital vs Goldman Sachs over CDO deals during the global financial crisis.
• Profile on Blackrock’s long/short equity fund and the team’s quant backgrounds.
• Article about investment safe havens, where executives from Continuum Capital, Blackrock, and MLC Long Term Absolute Return Fund, were interviewed.
• Profile on Parker Asset Management.
• Profile on private equity deals by Ellerston Capital, (which also manages equity and equity long/short funds) 

However, negative articles included;

• One by a New York-based guest writer in the AFR nonplussed by why hedge funds continue to attract institutional investment…despite books such as ‘The Hedge Fund Mirage.’
•  The Australian quoting warnings from ASIC’s deputy chairman about the way hedge funds seek market sensitive information.  The comments provide insight into how ASIC might view the hedge funds industry…and it does not seem positive.  http://www.theaustralian.com.au/business/financial-services/be-wary-of-hedge-funds-seeking-information-watchdog-warns/story-fn91wd6x-1226276397011

Highlights:

• Preqin has 596 fund-of-hedge-funds in its database.  289 are in North America, 243 in Europe and 64 in Asia/Rest of World.
• AuM for the sector peaked in Q1 2008 at $1,250 billion before falling to $950 billion in Q1 2009 and $900 billion in Q1 2010 before rising again.
• 38 percent of fund-of-hedge-funds have less than $250 million under management while around 10 percent have more than $5 billion AuM.

Details at…

“Preqin Hedge Fund Spotlight February 2012″

AIS has raised more than $3.1 billion for 10 different Macquarie strategies since 2005 and most recently raised over $1.5 billion for Macquarie’s flagship Asian Alpha hedge fund.  The AIS team is led by Jonathan Hall and Stephen Darke in New York. Capital raising efforts will be led in North America by Scott Brandewiede, in Europe by Mubin Sadikot and in Asia by Jennifer Page.

***

UK pension funds nearly doubled their allocations to hedge funds in the past year, from 2.6 percent to 4.1 percent of AuM, according the UK’s Financial News citing data from the National Association of Pension Funds.  The allocation is marginally less than the 4.3 percent allocated by Australian superfunds. (see Preqin report above).

Applying that percentage across the GBP800 billion run by pension fund members of NAPF suggests total hedge fund allocations would amount to GBP33 billion

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Pertrac has released a study of 1,210 Alternative UCITS funds.  The top two countries (by location of the underlying management company) were UK (372 funds), and Luxembourg (271 funds).  There were no fund management companies from Australia or Japan, nine from Singapore and five from Hong Kong.

Details of the 30 page report is at http://www.pertrac.com/resources/pertrac-research/the-coming-of-age-of-alternative-ucits-funds/?modal=register%2F%3Freferrer%3Dassets%2FUploads%2FPerTrac-The-Coming-of-Age-of-Alternative-UCITS-Funds-January-2012.pdf