Sat, Apr 29, 2017
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. Opalesque Exclusive: Ex-Man manager combines sustainable investing with AI/ML[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Dr. Richard Bateson, quant fund manager and physicist, has recently

  2. Other Voices: "Winner-take-all" dynamics and hedge fund investing[more]

    A growing stream of thinking in microeconomics is the concept of "winner-take-all" dynamics. The idea seems simple. A combination of networking economics and classic economies of scale creates situations where there are just a few dominant firms or economic agents who are able to capture significant

  3. Investing - How Chipotle's comeback attracted big data robots and value investors alike[more]

    From Forbes.com: When William Ackman's ailing hedge fund Pershing Square Capital Management bet $1 billion on shares in Chipotle Mexican Grill beginning in July 2016, the stakes couldn't have been higher. Pershing Square was reeling from what would eventually be a near $4 billion loss in drugmaker V

  4. Gondor Capital sees challenges ahead for financial markets as two hedge funds post strong gains in Q1[more]

    Komfie Manalo, Opalesque Asia: Vincent Au, portfolio manager of New York-based hedge fund firm Gondor Capital Management believes that the remaining of the year would be challenging for the financial markets even as his two hedge funds maintain

  5. Service Providers - Colemore launches fee tracking service for limited partners[more]

    Following Colmore's successful launch in January 2017, the firm has announced the launch of FAIR.. FAIR is designed to help private equity investors independently validate fees and incentives charged by underlying managers, saving time and providing an extra level of comfort. There is a glob