Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
Reuters – Early-stage investors in hedge funds should not be too greedy when negotiating with start-ups or it may hit their own investment, warns Man Investments, which this week agreed a short-term deal with an Asian start-up fund.
Net outflows of $300 billion between October and June, and the closure of the seeding operations of some banks, specialist funds and large hedge funds, have tipped the balance in favor of investors willing to back small funds.
Some seed investors now say conditions are fantastic for their strategy, allowing them good access to the best funds, often on favorable terms or by committing less capital.
HedgeCo.net (West Palm Beach) – During the first quarter, most alternative investors spent their time rebalancing their portfolios, redeeming with current managers, and waiting for the market to correct itself. This process freed up capital and uncovered gaps in portfolios, ultimately leading to a significant increase in alternative investment interest in the second quarter, according to a report by Brighton House Associates (BHA), a hedge fund and FoHF reserach firm.
Fixed-income strategies and volatility arbitrage were sought after, and experienced a significant boom in interest, as investors looked to take advantage of pricing inefficiencies created by rebounding markets, the report said. Investors’ concerns were evident by a push for greater liquidity, transparency, and access from managers of alternative funds. This shift manifested itself in conversations BHA analysts had with the global investor community.
Nearly a quarter of all real estate fund interest in Q2 came from wealth advisors. Consultants and government pension plans also showed significant interest. 48% of the real estate investors that BHA spoke were specifically targeting the commercial sector. In terms of strategy; most investors were looking opportunistically at any type of real estate exposure, and the majority of investors were focused on core and value-added strategies.
The second quarter of 2009 was very strong for alternative investment funds. Funds of hedge funds in particular saw an increase in investor interest after a disastrous Q1. In the first quarter, BHA received 108 mandates for funds of funds from investors; in the second quarter that number jumped over 40%. Several factors contributed to this change, including increased investor tolerance for lock-ups and longer redemption periods, increased investor interest in single-strategy funds of funds, and various investor types looking to increase their funds of funds exposure.
Many investors that spent the first quarter on the sidelines outlined active mandates while others committed capital to funds. Investors reported interest not only in funds with which they had long standing relationships, but also in new funds to which they were introduced in the past few months.
While many strategies realized increased interest during the quarter, volatility arbitrage and fixed income were two of the most intriguing, the report said. The rise in interest in volatility arbitrage is of little surprise. As the push for liquidity, focused investors on highly liquid, short-term trading-oriented funds. Investors also increasingly favored the relative stability and predictable returns that fixed-income funds provide. In the private equity space, venture capital showed signs of rebounding after a rough start to the year.
During the second quarter, 57% of investors profiled by BHA analysts maintained minimum asset requirements of $1 million to $200 million for potential funds, and 19% looking for funds with a minimum of $21 million to $75 million.
Investors and managers are hoping to build on the momentum created during the second quarter and carry it forward into the second half of the year, the report concluded.
Brighton House Associates is an alternative investment research firm that speaks to investors across the globe about their current interest and activity in alternative investment funds. Brighton House works with a network of over 100 fund managers and assists in indentifying qualified investors for their internal marketing campaigns.
Each quarter, BHA analysts collect detailed profiles from more than 1,000 investors globaly that are actively making investments in hedge funds, private equity and real estate funds, and related funds of funds. These investors’(AUM) range from less than $100 million to more than $10 billion dedicated towards alternative investments.
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Forbes – A year ago, Conrad Levy was a player in one of the most spectacular blow-ups in hedge fund history. Peloton Partners, the fund at which Levy was chief compliance and operating officer, collapsed after an outsized bet on subprime securities went horribly wrong, resulting in the fund losing $17 billion in a matter of days. Now Levy is profiting from that experience.
Since mid January, Levy has been working as a consultant for PricewaterhouseCoopers, helping hedge funds restructure themselves when they have hit a landmine.
HedgeCo.net (West Palm Beach) – Hatteras Funds has acquired a controlling interest in Alternative Investment Partners, LLC, a Harrison, NY-based provider of open end mutual funds of hedge fund strategies known as AIP Mutual Funds, increasing Hatteras Funds and its affiliated companies’ AUM to approximately $1.6 billion.
The two mutual funds of hedge fund strategies, the Alpha Hedged Strategies Fund (ALPHX) and the Beta Hedged Strategies Fund (BETAX) provide financial professionals with access to alternatives that have all the client-friendly features of a mutual fund, including daily liquidity, no lock-ups, no accreditation requirement, no performance fees, and 1099-tax reporting.
David B. Perkins, CEO and founder of Hatteras Funds, will become Chief Executive Officer of the company, which will be rebranded under the Hatteras umbrella and operate as the mutual fund division within Hatteras Funds upon investor approval of the transaction. Lee Schultheis, Chief Executive Officer and Chief Investment Strategist of AIP Mutual Funds, will remain with the company as President of this division. Mr. Schultheis, along with Asset Alliance Corporation, an original investor in the company, will continue as significant shareholders.
“AIP Mutual Funds is an ideal fit.” said David B. Perkins, Chief Executive Officer of Hatteras Funds. “AIP Mutual Funds had a stroke of genius when it created the structure of these funds, which allow a wider range of individuals to access alternatives. In a post-Madoff world, these mutual funds of hedge fund strategies are a tool for financial advisors to allocate to alternatives while meeting increasing client demands for liquidity and transparency.”
The strategies provide financial professionals with access to alternatives that have all the client-friendly features of a mutual fund, including daily liquidity, no lock-ups, no accreditation requirement, no performance fees, and 1099-tax reporting. The funds actually have a unique structure that allocates assets to a variety of hedge fund managers who run the capital in a separate account from their hedge fund – so the funds do not hold actual shares in a hedge fund. This is how they get around the lock-up and liquidity issues associated with hedge funds.
ALPHX and BETAX may also invest in smaller capitalized companies, foreign securities, securities limited to resale to qualified institutional investors and shares of other investment companies that invest in securities and styles similar to the funds, resulting in a generally higher investment cost than from investing directly in the underlying shares of these funds. Additional information will be filed with the SEC, the company said.
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Reuters UK – The government has created a fund to invest in technology-based firms with high growth potential, which it hopes will raise up to 1 billion pounds over the next decade.
The UK Innovation Investment Fund will focus on investing in small businesses and start-ups in digital and life sciences, clean technology and advanced manufacturing, the Department for Business, Innovation and Skills (BIS) said on Monday.
Bloomberg – Colonial First State, Australia’s biggest asset manager, may seek an alliance with a hedge fund to offer customers a strategy capable of profiting in rising or falling markets.
The manager of about A$130 billion ($103 billion) has A$4 billion of client money in five boutique funds. Sydney-based Colonial started the alliance business in 2002 to broaden the range of strategies offered and has tie-ups with firms such as the Al Gore-backed Generation Investment Management LLP.
“We don’t have anyone who specializes in absolute returns,” Graham Hand, Colonial’s general manager of funding and alliances, said in an interview in Sydney. “If we can get the right idea working, that would compliment what we’re doing. So we’re looking at a few possible deals in that space.”
Reuters – A wave of hedge funds are being launched this year by traders as the financial crisis fuels a shakeout of talent from Wall Street banks and big investment firms, an industry executive said.
Record redemptions last year prompted hundreds of hedge funds to shut down, and swooning markets have made it difficult to raise new capital. Still, one leading financial services technology firm said a growing number of managers are braving the tough environment to strike out on their own.
"There’s a huge resurgence of new start-ups," said Jayesh Punater, chief executive of Gravitas Technology, whose company builds and manages technology systems for investment firms.
Reuters – Star commodity traders, once synonymous with high-profile banks, are leaving for little-known investment firms that let them work and earn in ways iconic Wall Street firms no longer can.
The financial crisis and its amplifying threat on risk taking, bonus and pay at major financial institutions is causing big names like Goldman Sachs and Morgan Stanley to lose some of their best commodity talents to relatively obscure hedge funds — even start-ups — that promise more.
Reuters – Star commodity traders, once synonymous with high-profile banks, are leaving for little-known investment firms that let them work and earn in ways iconic Wall Street firms no longer can.
The financial crisis and its amplifying threat on risk taking, bonus and pay at major financial institutions is causing big names like Goldman Sachs and Morgan Stanley to lose some of their best commodity talents to relatively obscure hedge funds — even start-ups — that promise more.
Boston Globe – Despite the gloom gripping the markets, Bain Capital has raised $475 million for a new venture capital fund, according to two executives with direct knowledge of the fund.
It is the firm’s fourth fund that invests in start-ups. Bain is perhaps best known for its multibillion-dollar private equity deals. The Boston firm manages about $70 billion total, including a hedge fund and a debt fund that it runs.
West Palm Beach (HedgeCo.net) – Hedge funds returned a healthy 1% in January, wrapping up a tumultuous 2008 at -12.3%, according to Eurekahedge. Hedge fund assets fell $380 billion or 20% in 2008, from just under $1.9 trillion to just over $1.5 trillion.
Eurekahedge’s forecast expects to see more hedge fund start-ups in the near future, given the increasing number of people moving out of investment banks (whether voluntarily or otherwise) to venture into the hedge fund space.
In terms of returns, hedge funds are in a better position to generate superior returns than most other conventional managers and market players, owing to the flexibility that hedge fund managers enjoy, the Eurekahedge report says, their ability to identify new trends and investment ideas and act on them promptly.
"We anticipate trend-following strategies to continue benefiting from market movements across the currency and commodity markets, as they had through most of 2008. We expect the equity markets to remain volatile and range-bound over the next few months, but long/short managers could potentially benefit from pockets of opportunities (even if short-term ones) on both the long and the short side, given the uncertainty around the 4Q08 earnings reports and deeply discounted valuations across most sectors."
