Fri, May 6, 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. Comment - Unmasking the men behind Zero Hedge, Wall Street's renegade blog[more]

    From Bloomberg.com: Colin Lokey, also known as "Tyler Durden," is breaking the first rule of Fight Club: You do not talk about Fight Club. He’s also breaking the second rule of Fight Club. (See the first rule.) After more than a year writing for the financial website Zero Hedge under the n

  2. Opalesque Exclusive: Hedge fund talent, fees take a hit at the Milken Global Conference[more]

    Bailey McCann, Opalesque New York: It's been a rough year for hedge funds and now, even other managers are panning them. "Frankly, I’m blown away by the lack of talent," was Point 72 CEO Steven Cohen's assessment of trying to find candidates to hire in the investment business at a panel o

  3. Hedge funds fell in April as alternative UCITS surge in Europe[more]

    Komfie Manalo, Opalesque Asia: Hedge funds shed more in April with the Lyxor Hedge Fund Index down 0.9% during the month (-2.8% YTD), but there was some good news with alternative UCITS showing strong inflows in Europe. In its Weekly Briefing, Lyxo

  4. Global hedge funds recover in April on resurging energy commodities[more]

    Komfie Manalo, Opalesque Asia: Global hedge funds recovered in April with the HFRX Global Hedge Fund Index gaining +0.41% last month (-1.47% YTD), while the HFRX Market Directional Index gained +5.31% during the same

  5. AIG lost $349m in hedge fund portfolio in Q1[more]

    Komfie Manalo, Opalesque Asia: Large US insurance group AIG lost a net $183m for the first quarter 2016, year-on-year. The group blames the loss on the impact of market volatility on investments, as well as net realised capital losses and restructuring costs. Its hedge fund portfolio made a n