'If past history was all there was to the game, the richest people would be librarians.'
- Warren Buffett
Performance
Hedge funds as measured by the Greenwich Global Hedge Fund Index (GGHFI) showed mixed results during the month of June but managed to extract a positive return in unpredictable markets. The GGHFI returned 0.19% while the Greenwich Composite Investable Index (GI2) gained 0.45% during the month, compared with global equity returns in the S&P 500 Total Return 0.20%, MSCI World Equity -0.61%, and FTSE 100 -3.82% equity indices. Year-to-date, the GGHFI and the GI2 have returned 9.12% and -0.48%, respectively, while the S&P 500 Total Return, MSCI World Equity, and FTSE 100 Indices have returned 3.16%, 4.76%, and -4.17%, correspondingly. Fifty-four percent of constituent funds in the GGHFI ended the month with gains.
|
Greenwich Alternative Investments Index |
|||||||||
Total Return |
3 Yr Annual |
5 Yr Annual |
|||||||
Index |
Jun 09 |
YTD |
CAR |
STD |
CAR |
STD |
|||
| Global Hedge Fund | 0.2% |
5.1% |
9.1% |
8.7% |
-7.6% |
2.6% |
7.9% |
5.5% |
6.8% |
| Global Long/Short | 0.5% |
5.6% |
10.7% |
10.9% |
-11.1% |
1.0% |
10.1% |
5.0% |
8.9% |
| Global Market Neutral | 0.9% |
3.4% |
7.9% |
6.4% |
-6.2% |
2.3% |
6.0% |
4.5% |
5.0% |
| Futures | -1.6% |
2.5% |
-2.2% |
-0.4% |
3.8% |
9.3% |
8.4% |
9.2% |
8.6% |
Benchmark |
YTD |
CAR |
STD |
CAR |
STD |
||||
| Barclays Capital Agg Bond Index | 0.6% |
0.7% |
1.9% |
1.8% |
6.1% |
6.4% |
4.0% |
5.0% |
3.6% |
| S&P 500 Index | 0.2% |
5.6% |
3.2% |
15.9% |
-26.2% |
-8.2% |
19.0% |
-2.3% |
15.5% |
| MSCI World Index | -0.6% |
8.6% |
4.8% |
19.7% |
17.1% |
||||
| ASX 200 | 4.0% |
1.4% |
9.1% |
11.3% |
-20.1% |
-3.8% |
17.1% |
6.7% |
14.8% |
| CAR= Cumulative Average Return, STD = Standard Deviation | Source: Greenwichai.com |
Locally, Australian hedge funds returned an average of 1.3 percent in June, the fourth consecutive monthly gain. The Australian Fund Monitors Index, which tracks the performance of more than 200 hedge funds managed from within the country, added to May’s 2.5 percent climb in its longest stretch of gains in almost two years, according to a report, a figure based on 31 percent of funds reporting. Australian hedge funds have climbed 7.1 percent in 2009, rebounding from last year’s record 18 percent fall and beating the benchmark Standard & Poor’s ASX 200 index’s 0.4 percent rise this year, Bloomberg News reported.
Markets
Sentiment (based on macro manager survey)
Macro Managers grew more bearish on the prospects for U.S. Equities in July, with 60% of managers reporting a bearish sentiment for the month versus 44% in June; 30% of managers reported a bullish outlook for the month. Macro Managers reversed their outlook on the U.S. Dollar versus June. For July, 60% reported a bullish sentiment, 10% held a neutral view, and 30% maintained a bearish view. With respect to 10-year U.S. Treasury prices, Macro Managers were decidedly more bullish versus April. For the month, 80% of managers reported a bullish outlook, 0% of managers reported a neutral outlook, and 20% reported a bearish outlook.
News
Hedge fund industry assets surge as performance leads industry recovery
Hedge-fund assets grew for the first time in a year, to $1.43 trillion, as investment performance improved and customer withdrawals decreased in the second quarter, according to data compiled by Hedge Fund Research Inc...more>>
Investors demanding more data and oversight
Many hedge fund investors burned by last year's market meltdown are demanding a system of checks and balances in which outsiders keep a closer watch over assets, according to recently released data.
Researchers at State Street Corp found Pension funds, endowments and wealthy investors that have long funneled money into loosely regulated hedge funds will want to see more data detailing how their investments are valued and priced.
"In the next phase of the hedge fund industry, investors are almost certain to demand independent custody of their investments, State Street wrote in a research report.
For years, hedge fund managers were free to cultivate an aura of mystery in order to keep competitors from copying their trading strategies. Investors let managers lock up money for months or even years and asked for little information about exactly how the money was invested.
Now State Street researchers found that investors will "demand a heretofore unprecedented level of information access" that will include an overview of investment positions and near real-time reporting of valuations for illiquid investments.
The California Public Employees Retirement System, the biggest public U.S. pension fund with $174 billion in assets, has already asked 26 hedge funds to provide better reporting on individual securities.
"Other large pension funds are expected to follow suit," State Street wrote in its report.
The researchers also said the new demands by investors suggest they are regaining confidence in the $1.3 trillion industry.
"Analysts at Van Mac Group saw the need for greater transparency early on, and launched the Multi Asset Alternative Fund (MAAF) in response," says Van Mac Group Managing Director Scott MacDonald.
"We provide clients with regular 'Risk Dashboards', snapshots of the risk and return for each fund in the portfolio compared with its peers in the same strategy for the most recent 12-month period. Bottom quartile statistics are highlighted, while other statistics include the Return, Volatility, Sharpe Ratio and Sortino Ratio, Maximum drawdown, and Correlation with the underlying strategy.
"Together these statistics allow investors from institutional clients to self-managed super funds to understand how their investment is performing, secure in the knowledge that we have enacted comprehensive risk management strategies.
These strategies monitor manager style and strategy drift, uncover abnormal investment risks, monitor market risk, credit risk, operational risk, portfolio risk, event risk and model risk, maximizing returns irrespective of market condition, he adds.
"We’re also able to achieve this level of service for our clients at approximately 50 percent less for our clients than they currently pay by engaging wholesale fund of funds."
Contact Van Mac Group for more information.
Pension schemes seek to create own fund of funds
Pension schemes are increasingly rejecting pre-selected fund of funds in favour of creating their own portfolios, as they look for direct control over their investments, according to a senior investment consultant at Mercer. Long/short funds and distressed debt products were attracting particular interest.
Tom Geraghty, business head of investment consulting for Europe, the Middle East and Africa, said institutional investors were scouting for single hedge fund strategies after a year in which fund-of-fund losses have cast doubt on manager skill.
"If anything the approach to investing in hedge funds going forward will be multi-strategy as opposed to a broad collection of hedge funds," he told Reuters.
There has already been evidence that pension funds did not lose faith with hedge funds through the credit crisis, but Geraghty's comments suggest a clear change in emphasis.
Van Mac Group Managing Direct Scott MacDonald agrees, adding that his company’s research has shown a trend away from paying fees to funds of funds promoters that haven’t met expectations in terms of adding value through underlying manager selection. “This makes it very difficult to justify their fees.
“We expect more pension funds to follow the trend and go direct,” he adds. “Van Mac Group’s managed account platform is an efficient way to select a cohort of top performing managers, with customized regular reporting on those managers’ performance providing a much greater level of transparency and greater control for the investor.”...more>>
Trends
European protectionism threatens local funds
A proposed European directive that recommends that any alternative fund managers based outside Europe will require a 'passport' in order to facilitate and trading activities within Europe will restrict the overseas operations of Australian hedge fund managers, and may lock local operators out of European markets altogether...more>>
'Pay-to-Play' proposal may stem pension-industry abuses
In a proposal that has been a long time coming, the U.S. Securities and Exchange Commission’s plan to restrict investment advisers from giving politicians money to win pension business may help stem abuses in an industry that oversees more than $2.2 trillion of public retirement funds, according to former regulators...more>>
Research
Hedge fund "2 and 20" fees come under pressure – Report
Hedge funds' traditional "2 and 20" fee structure is being eroded by demanding investors who want a better deal, according to a survey by research firm Preqin. The survey found that the average hedge fund collects 1.63% for management fees and 17.21% on any performance gain, a marked shift away from the traditional industry standard of "2 and 20", as investors become more powerful in the manager/ client relationship...more>>
Light Relief: Yearly critical thinking test for financial executives
It's that time of year to take our annual investment professionals thinking test. Exercise of the brain is as important as exercise of the muscles. As we grow older, it's important to keep mentally alert. If you don't use it, you lose it!...more>>