Sat, Feb 13, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Fitch says FoHFs saw renewed inflows, forced to adapt strategies in Q2-10

Monday, April 19, 2010
Opalesquer Industry Updates - Fitch Ratings notes that hedge funds appear to be benefiting from renewed interest from institutional investors, who believe they provide better opportunities than those offered by straight equity or credit market investments. Hedge fund inflows turned positive in the second half of 2009 and investor interest has increased, according to asset managers polled by Fitch and data vendors.

Hedge funds are now perceived as better able to exploit the current market environment, at least until more discernable market trends emerge. Hedge funds were less sought after during 2009 as most asset classes rallied. Managers of funds of hedge funds (FoHFs), still a large channel in Europe for hedge funds investing, have renewed their focus on investment idea generation, strategy reallocation and the launching of new funds, after focusing on downsizing, restructuring, and resolving liquidity and suspension issues in 2009.

"As credit spreads have narrowed after last year's rally and the future of equity returns are more uncertain, active management in a less constrained format has become more appealing for certain investors," says Aymeric Poizot, head of Fitch's EMEA Fund and Asset Manager Rating Group "The drive for an absolute return is being sought by investors as dispersion and divergence increase both within and between asset classes, regions and sectors."

Alongside traditional funds of hedge funds, where inflows turned positive late last year, and which have improved their liquidity profiles, there is increased demand for segregated mandates, tailored for single investors. Recent institutional mandates have favoured different approaches to hedge fund investing in comparison to those seen before the financial crisis.

"Institutional investors want to be more directly involved in hedge fund selection and FoHF managers are expected to act more as solution providers, via managed accounts or advising services," says Olivier Fines, Associate Director in Fitch's Fund and Asset Manager Rating Group. "Investors have also become more demanding in terms of selected hedge funds, strategies, and fee structure, whilst others are even participating in the selection process or bringing the selection in-house through direct investments in hedge funds."

Fees for segregated mandates are expected to decline, compared to traditional FoHFs, as management becomes less discretionary and due to the negotiating power of institutional investors. FoHF managers will be increasingly challenged on their allocation capabilities and will increasingly have to employ managed accounts, and hedge fund replication techniques or overlays, alongside traditional hedge funds. Fitch believes that top down resources as well as financial engineering, quantitative and/or risk management functions will become critical constituencies of a FoHF manager's operations. Fitch assesses those elements thoroughly in its Asset Manager ratings of FoHF managers.

In contrast to the increased demand from institutional investors, demand from private banking, historically the biggest client of European hedge funds, is still being dampened by risk aversion and regulatory uncertainties, notably the Alternative Investment Fund Managers directive. Asset managers are responding to this by launching funds compliant with the UCITS directive.

From an asset manager rating perspective, if improved fund performances and inflows continue, Fitch would expect performance fees to increase and asset bases to expand. Many hedge funds and fund of hedge funds are approaching their "high water mark", the historical net asset value high above which performance fees are charged again. As the financial situation of rated managers improves, Fitch would expect a reversal of the recent trend of restructuring and cost cutting to occur.. Corporate website: Source

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - Real estate secondaries sole 'bright spot' in 2015, As hedge funds stumble, one firm prepares to buy illiquid stakes[more]

    Real estate secondaries sole 'bright spot' in 2015 From IPE.com: The secondary market for property was the sole “bright spot” over the course of 2015, as hedge fund secondaries saw deals fall by two-thirds, according to a wide-ranging survey of the market. Setter Capital said 2015 saw th

  2. Asia - Hedge fund manager Kyle Bass estimates China's foreign reserves below critical level[more]

    From Nasdaq.com: Investor Kyle Bass stepped up his attack on China's currency, arguing in an investor letter distributed Wednesday that the second-largest economy's foreign reserves are "already below a critical level." The comments mark the latest effort by hedge funds and other investors to raise

  3. Investing - Some hedge funds want to make subprime auto loans next big short, 11 hedge funds that are “all in” on the FANG stocks, Hedge funds short London luxury homes, Cynet raises $7 million from U.S. hedge fund[more]

    Some hedge funds want to make subprime auto loans next big short From Bloomberg.com: A group of hedge funds, convinced they have found the next Big Short, are looking to bet against bonds backed by subprime auto loans. Good luck finding a bank willing to do the trade. Money manage

  4. Investing - Hedge funds see selloff in European bank stocks as buying opportunity[more]

    From WSJ.com: The massive selloff in European bank stocks and bonds is overdone and presents a “phenomenal” buying opportunity, according to some of Europe’s top hedge-fund managers. Despite a 28% slump in European bank stocks this year, including a 38% fall in Deutsche Bank AG and a 34% drop in Soc

  5. Legal - Carlyle accused of fraud by ex-employee, Hedge funds win CDS breach of contract suit against Deutsche Bank, Hedge fund asks for OK on $27.5m Goldman CDO deal, SFO examines Barclays hedge fund profits[more]

    Carlyle accused of fraud by ex-employee From AI-CIO.com: A former portfolio manager claims he was fired for blowing the whistle on “crazy” and “irresponsible” investments. Carlyle Group has been sued by a former portfolio manager for one of its hedge funds, who accused the firm of “knowi