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Why offshore funds setting up distribution in Australia target 25% of total AUM to be raised there: Roundtable

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The Australian hedge fund environment has always been good

Australia is the fourth largest pension market in the world and growing at 10% a year. It is also home to some excellent managers who have delivered consistent alpha over a long period of time.

For example, the market-neutral space in Australia is still generating great returns. By end of October 2015, investors should have gotten between 12% and 20% in an Australian market-neutral fund, and over the last ten years 12% to 18% per annum with very little volatility. Australia is a sweet spot for investors, but under utilized, also by local investors.

Many of the larger Australian institutions had gone with global hedge funds, mostly top 100 funds, whose performance has often disappointed. If we look through their position level data or through their regulatory filings, we know that the top 100 funds are all in the same trends. That means if you buy one of the top 100 funds, you are mostly getting the same as with any of the other 99. It looks like they are not doing anything different, they are not going out for informational advantage.

But contrary to the global landscape, the Australian hedge fund environment has always been good, and this Roundtable discusses the structural reasons for that. Currently, offshore and Asian investors are coming back into the Australian marketplace, also because the Australian dollar has fallen. Australia also made some regulatory tax changes which will are positive for foreign investors.

How to access the Australian investor bases

The Australian pension market has split into three in Australia. These are retail, a middle sector that includes the self-managed super funds and family offices, and institutions.

Many wealthier people have lifted out their super funds from the industry superannuation funds into a self-managed super. What's interesting is that the institutional piece is actually getting smaller as a set of the entire wealth in Australia, because there have been no net dollar inflows in the institutionally managed super funds over the last three or five years. Most of the wealth is now sitting in retail (35%) and self-managed super (40%). The rest is invested with institutional supers.

The institutional market is controlled by the consultants to a great extent. When someone is looking to get access to the Australian retail investor base, which includes the wealthier self-managed super funds, you have to get across gatekeepers as well.

Getting a hedge fund on a retail distribution platform is a major undertaking and quite a long commitment, but it’s also a very profitable commitment, because once you get on what’s called the APLs, which is the Approved Product List, your fund will then sit in model portfolios, and from every retail dollar that comes in you may be allocated 1% of that dollar. There is actually a long history of offshore hedge funds raising significant amounts of money in Australia. Some funds were even able to use Australia as a springboard to then raise money in their homeland.

Participants in this Roundtable discuss detailed strategies and the required steps offshore investors need to take to get access to Australian retail, self-managed super, and family office investors.

The Opalesque 2015 Australia Roundtable, sponsored by Ascalon Capital, took place in November in Sydney with:

  1. Chad Slater, Joint CIO, Morphic Asset Management
  2. Damien Hatfield, Head of Sales, Australia, Ascalon Capital
  3. Daniel Liptak, CEO, ZG Advisors
  4. John Maddalena, former CFO, Olbia Funds Management (family office)
  5. Rob Lance, Head of Ascalon Capital Managers Australia
  6. Stefan Chytra, Co-CIO, Whitecove Capital
The group also discussed:
  • Why offshore funds looking for distribution in Australia should at least target 25% of their total AUM to be raised there
  • Reasons why also going forward Australian hedge funds will outperform
  • Benefits of a very active approach to running hedge fund portfolios
  • How are family office investors different from superannuation investors?
  • Why Australian institutional superannuation funds have a classic agency problem
  • How quants determine what to disclose to which type of client. How to best market a highly proprietary trading strategy.
  • Insights into the Australian incubator and early investor communities

Access the Opalesque Roundtable Series - Australia 2015 | Download here

The Opalesque Roundtable Series offers unparalleled intelligence on the most important global hedge fund jurisdictions and their players. The Roundtable Series is a free publication from Opalesque and is continually updated. Please scroll down to view the full selection of our Roundtables - covering the globe!

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