A recent note from Daniel Liptak, Head of Alternative Research at Melbourne-headquartered Zenith Investment Partners reminded investors that despite the fact that CTAs are struggling and have been over the last 12 to 18 months, they do have a useful role to play in investors' portfolios. It's timely because, as Liptak says, in an interview with Asia Pacific Intelligence, Australians love CTAs, not just their domestic variety, which is increasingly strong, but also the large global CTA firms such as Winton or AHL.
Zenith Investment Partners was founded in 2002 by David Wright and David Smythe to research and rate funds that were available through the mezzanine level of the financial planning networks in Australia. The firm now has 22 staff and is growing from its original business to include servicing boutique financial planning groups and to larger wealth managers such as a couple of domestic banks.
Liptak joined the firm two and a half years ago to do research in alternatives. He now has a team of six full time research analysts looking at alternatives spanning direct investments such as water; private equity funds and hedge funds and all combinations of the three, covering global funds and with particularly good coverage of Australian funds. Liptak has been in hedge funds since 1994 and in hedge funds in Australia since 2000.
"We have very good coverage of the local market" Liptak says, and his database has been used for judging and selection of the Australian hedge fund awards since their inception in 2001.
Once or twice a year, Liptak travels around the world to see hedge funds but believes that his strength lies domestically, with coverage of some 450 different alternative investment opportunities per annum and 85 opportunities on their approved list. The firm also advises small institutions, pension funds, family offices on both domestic and offshore investment. Australia, famously, is home to a large pool of pension fund money and increasingly the 'mum and dad' investors, who have accumulated a large pot of investment money, are looking for advice on what to do with it.
Typically, Liptak says, the local Australian advisers and consultants suggest large offshore funds for investment which means that historically a large proportion of the larger global hedge funds' assets under management have come from Australia (it is estimated that 10 years ago, more than 50% of Man Group's assets were from Australia). "Large investors go to larger funds" Liptak says, "but they are missing some excellent local opportunities as well as Australian equity market neutral funds have averaged 15% per annum over the last 10 years. They have outperformed everything. I can't find a global investment opportunity that competes."
The strength of 'mum and dad' investors in Australia is reflected by the fact that they are increasingly opting out of the traditional superannuation institutions and organising their own investment pools. The superannuation institutions are chasing new members and building products to suit people in their 20s, just starting out on investing for their retirement.
Liptak believes that three different types of hedge fund managers are well represented locally in Australia. CTAs with firms such as Kaiser Trading and Baronia; market neutral funds such as the Bennelong Long Short Equity Fund which has achieved 8.02% to October this year, and 17.96% per annum over five years or the Regal Tasman Market Neutral fund which has hard closed, having achieved performance of 21.30% over five years. "People want to access good fund managers from here but they don't have the time to do research and selection" Liptak says.
Looking at Asia, from the Australian perspective, Liptak felt that pre-2008 too many Asian hedge funds were beta oriented, just moving with the markets and not achieving a great deal of alpha. "Everyone knows that the MSCII World Index is underweight greater China so we believe that using dedicated fund of hedge funds provides us with access to China's growth while limiting the downside."
Exposure to the local stockmarket in Australia gives some exposure to China as well. "The long term play is through consumption and moving through now to the industrial food chain - it's not just commodities but will expand to other sectors as well" Liptak says.
For their business, Zenith is always on the lookout for domestic and global talent. "We have geared up to offer a robust research process and a strong team" he says. By December 2013, he expects to be advising on alternative portfolios worth A$4-5 bn. (US$4.1bn-US$5.1bn).
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.