Fri, Aug 26, 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. Opalesque Exclusive: Algorithms platform aims to target typical challenges found in quantitative hedge funds[more]

    Benedicte Gravrand, Opalesque Geneva: Last month, Quantopian received investments from Point72 Ventures, the new venture capital arm of Steven Cohen’s Point72 Asset Management.

  2. LatAm hedge funds surge in 1H to +24.4%, emerging markets assets rise[more]

    Komfie Manalo, Opalesque Asia: Hedge funds investing in Latin America posted strong gains through mid-2016, reversing declines in four of the past five years, including the last three years, to lead all areas of hedge fund performance through the first half of 2016, according to the latest HFR Em

  3. Asia - LGT Capital Partners: Alternatives set for continued rise in Asia[more]

    From Asianinvestor.net: More flows are likely into insurance-linked strategies, private equity and trend-following strategies/CTAs, given the benefits of such investments, argues LGT Capital Partners. Despite the numerous quantitative easing programs and bailouts of recent years, the quest for

  4. Opalesque Roundtable: Low and high fee investments often better than mid fee hedge funds[more]

    Komfie Manalo, Opalesque Asia: Hedge funds that charge the low and high fees stuff often provide better returns than "those sort of mid-fee investments", said Keith Haydon, chief investment officer of Man FRM. (Alternative) investment managers who charge high fees would often provide the most int

  5. Hedge fund investors pull $5.7 billion in July[more]

    From Bloomberg.com: Hedge funds suffered a third consecutive month of outflows in July as investors withdrew $5.7 billion, according to industry tracker Eurekahedge. Redemptions totaled $20.7 billion in the three months through July, with money managers betting on equities suffering $18.4 bill