Mon, Jun 27, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Private Equity Strategies

Insiders View: Textron CIO Forecasts Great Merger Between PE & Hedge Fund Managers

Wednesday, June 11, 2014

Benedicte Gravrand
Opalesque Geneva

Charles Van Vleet, Textron's private pension fund CIO, gives his perspectives on why benchmarking against the HFRI is a mistake in a rising S&P environment in a recent Opalesque TV interview. He also forecasts a great merger between private equity and hedge fund managers, explains why the latter may be better at managing structured debt and what hedge funds can do to facilitate investments by allocators.

The wrong way to use hedge funds

His predecessor took on a 3% allocation in hedge funds and benchmarked it against the HFRI, he says, but he thinks it is the wrong way to use hedge funds. "My observation of hedge funds is that they are increasingly, particularly in the rising S&P environment we've had in the last two or three years, taking on – just like the HFRI in general – more and more equity beta. There are a lot of less expensive ways that I can get equity beta," he comments.

Mr. Van Vleet agrees that the HFRI is a great index, and a "slow rabbit" in which one can pick some select funds. His objective however is not to create a slow rabbit benchmark internally but to "carve out something that truly looks different to rate beta, equity beta, curve currency."

He wants to find hedge funds without the beta characteristics, and benchmark them to LIBOR +200. If he can make a basket of such funds – with various strategies – he will "stack that on top of" his S&P 500. He could never justify, he claims, tying up capital at LIBOR +200 unless he was going to use it as leverage to port it on top of his other bond and equity and other investments. However, other plan sponsors may not think that way, he adds later on, as not all might wish to use leverage in this way. But he thinks it is going to be impossible to get a 7.5% rate of return without leverage. "The objective is to use smart leverage." "I think that's the best way to use hedge funds," he continues. His program is to shift the allocation to L+2 some time this year, although "it's a 12-month project."

Hedge funds better at managing structured debt

Mr. Van Vleet sees a "great collision" between traditional private equity managers and traditional hedge fund managers, as they both bring "tremendous insights and brilliance to investing."

As part of his plan to increase allocation into private debt structures (such as bridge loans, capital expansion loans, asset-back receivables, factoring, lease financings, etc.), he has looked at the likes of KKR, Bain Capital, Carlyle on the private equity side, as well as hedge funds such as Avenue Capital, Anchorage Capital, and Tilden Park that are coming into that space.

Those hedge funds coming into the structured debt space might have been those that inappropriately invested in a three-year liquidity idea, had a 90-day liquidity vehicle, and learned their lesson in 2008, he continues. These funds might still be investing in the three-year liquidity ideas, but they need a three-year liquidity vehicle - so they are looking to build private equity structures. He thinks hedge fund managers will be better at managing structured debt. "There are fantastic opportunities for hedge fund managers who are thoughtful about creating a new vehicle for those type of ideas."

Advice to hedge funds

The first thing that hedge funds could do to help corporate plan sponsors such as his, is to have the right vehicle for the right idea. The second thing they can do is present clean numbers, "an honest assessment of your Greeks," with returns, Sortino, Kurtosis, drawdown, recovering drawdown, hit rate, etc. in a single column spreadsheet, so "I can do my own Greeks."

Indeed, Mr. Van Vleet found that hedge funds in general are not giving a good menu of typical Greek analysis.

Background

In this Institutional Investor Series interview, Michael Oliver Weinberg, Adjunct Associate Professor of Finance and Economics at Columbia University and CIO of family office, MOW & AYW LLC, profiles Charles Van Vleet, CIO and Assistant Treasurer of Textron, Inc.

Textron is a Providence, Rhode Island-based multi-industry company with plants in Texas and Kansas. With around 33,000 employees, the company produces many well-known brands, some in the defense sector, including Bell, Cessna and E-Z-GO. It is ranked 225th on the FORTUNE 500 list of largest U.S. companies.

Scivantage Launches FinTech Incubator Program in Collaboration with Stevens Institute of Technology

The Scivantage FinTech Incubator Program aims to support and accelerate the launch of next generation financial technology products, enabling entrepreneurs and early-stage startups to drive a new era of financial services innovation.

The Incubator will be a 12-week program that empowers entrepreneurs and early-stage startups to develop dynamic and disruptive technology that will transform the Financial Services industry.

Through a competitive process, entrepreneurs will be selected to participate in the incubator program during each cycle, with each receiving:

  • An investment of up to $25,000 in seed capital.
  • Office space in Scivantage's Jersey City, N.J., office.
  • Sales, marketing and design support.
  • Mentorship from a group of seasoned executives
  • The opportunity to recruit students & alumni from Stevens Institute of Technology.

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies


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 Roundup: Hedge funds shrink as liquidations outpace new launches in Q1: hedge fund news, week 27[more]

    In the week ending 17 May, 2016, HFR said hedge fund liquidations declined narrowly to begin 2016 after rising sharply to conclude 2015, as investors positioned f

  2. Europe - Hedge funds keep powder dry over big Brexit bets, Hedge funds sense profit in Europe shock waves after Brexit vote, Soros warns Brexit may cause pound plunge worse than Black Wednesday, After Brexit: What will happen if Britain votes to leave the UK?[more]

    Hedge funds keep powder dry over big Brexit bets From FT.com: Hedge funds are shying away from big bets on Brexit, with many unwilling to risk further losses having already suffered a painful first half of the year. With the outcome of a UK vote on the country’s membership of the Europea

  3. News Briefs - ’Flash Boys’ get green light to launch stock exchange, Pimco says ‘storm is brewing’ in U.S. commercial real estate, Bankers get ready to rumble at Hedge Fund Fight Night, AIMA Australia celebrates 15th anniversary[more]

    ’Flash Boys’ get green light to launch stock exchange In an investing environment ruled by fast, the newest U.S. public stock exchange is banking on slow. Well, slower. IEX Group, which won Securities and Exchange Commission approval on Friday to go head-to-head with the New York Stock E

  4. Blackstone buys minority stake in New York-based credit hedge fund Marathon[more]

    Benedicte Gravrand, Opalesque Geneva: Blackstone Strategic Capital Holdings Fund, a vehicle managed by Blackstone Alternative Asset Management (BAAM), has acquired a passive, minority interest in Marathon Asset Management, for an undisclosed sum. Based in New York,

  5. Investing - Soros, Druckenmiller among hedgies profiting in market plunge, Hedge funds were most bullish on bonds since 2004 before Brexit, Surprise Brexit vote unleashes scramble for dollars, High-yield hit on Brexit but no panic selling, Scientist turned hedge fund founder lured to pound, euro, Hedge fund avoids commodities, posts big gains[more]

    Soros, Druckenmiller among hedgies profiting in market plunge From HITC.com: Bullish positions in gold and volatility and well-timed short bets on China and emerging markets, among other areas, were some of the trades that benefited hedge funds on Friday as markets digested Britons' s