Why hedge funds?
Total assets under management for the hedge fund sector have reached an historical peak at estimated USD 2.6 trillion in 2013. The projections are at USD 3.3 trillion by 2015 with a compounded annual growth rate at 15%.
Despite these numbers and the general perception in Europe that investors are increasing investment flows, most of them, either pension funds or insurance groups, are still questioning hedge funds in their asset allocation. We notice that recent investment flows into liquid equity strategies come from massive outflows in Managed Futures.
As outlined by Lyxor Asset Management in its latest white paper: in the post-2008 environment, it is no longer possible to consider hedge funds as a single asset class. Lyxor recommends to consider classifying hedge funds in two groups: the substitutes and the diversifiers. The substitutes aim to improve risk/return profiles of portfolios by replacing equities and bonds, the diversifiers aim to generate absolute returns. In a traditional allocation process, investors would consider allocating in equities and bonds with a third complementary allocation in hedge fund; Lyxor values hedge funds within the two core single assets portfolios as equity/bond substitutes with a third diversifier portfolio to be added, composed of strategies delivering more significant alpha.
However, investing in hedge funds is still a very sophisticated process that explains the trust of investors in brand names and the phenomenal success of absolute returns funds managed and distributed by the large asset managers: Schroders, JP Morgan, Henderson or Standart Life Investments. Alternatively, the UCITS platforms are great contributors to facilitate comprehensive accesses to liquid hedge fund strategies. Their success paves the way for even more mature investments in hedge funds.
We investigate in this edition the model of independent platforms and start our country focus distribution analysis by Switzerland: what are the key ingredients to sell in Geneva or Zurich? How to maximize sales efforts?
We hope that you will enjoy this edition and are looking forward to receiving your feedback!
The Lyxor paper “Hedge Funds in strategic asset allocation” is available on www.lyxor.com.
Sophie van Straelen
About your editor: Sophie van Straelen and Asterias Ltd: Sophie van Straelen started her professional career in investment banking spanning derivative markets and hedge funds. Her 12 year experience in investment banking provided a strong base to found Asterias Ltd, the consultancy located in London, specialised in delivering strategic insight in distribution for service providers and hedge fund managers. Listed in 2009 by EFinancial News as one of the top 100 most influential women in finance in Europe, she is a recognized, valuable and independent source of analysis for the media, lobbying groups and investors.