Mon, Aug 20, 2018
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications

Nordic hedge funds and CTAs an unabated success story since 1996 - Roundtable

 

Sign up here for our free Roundtable Scripts - get this unique intelligence by email as Opalesque publishes them:

Since Brummer & Partners' decision to establish their first hedge fund in 1996 onshore in Sweden, the Nordics have been a centre of excellence in both active management and professional investing. The Swedish FSA has the reputation to actually know and understand hedge funds, and has provided an environment where retail investors, for instance, have been able to access hedge fund returns at a really early stage.

UCITS absolute return funds have grown nine times faster than offshore funds since 2009

This success story is continued with UCITS absolute return funds which have grown by around 47% since 2009, while the offshore fund market has grown by 5%. That is a fundamental change in the industry. Regulations have put more structure around hedge funds, so they are not as scary as they used to be perceived in the past, and regulators feel it is acceptable for someone in a private pension or individual portfolio to access that kind of diversification.

Alternative asset managers have a great opportunity to show the advantage of alternative investments in today’s environment, where rates can’t really go much lower and equity valuations may not be very attractive. Also more traditional institutions are adopting the alternative investment route. We see, for example, that an institutional investor such as the Church of England, which by the way runs a portfolio of £9 billion, has no issue with investing significantly in CTAs.

Crisis Alpha and Innovation in the CTA Space: Will they bounce back in the next quarter?

CTAs say that one of the most important benefits they provide to investors is “crisis alpha”. These funds should give their strongest returns in times of market distress, and especially equity distress which is typically when irrationality dominates. Equity distress signals change in the macro-economic, political or psychological climate and is strongly linked to trending markets. That is when CTAs or momentum-based strategies have historically performed the best, and there are good reasons why they will continue to do that the next time the market tanks.

In light of the bad years (2011, 2012, 2013), most CTAs have put a lot of research effort into risk management and portfolio composition. They were forced to, because things suddenly were not as easy as in previous years. But these steps, or shifts in quality or ability, happen regularly. As soon as the CTA industry is pronounced dead, which happened a year and a half ago, something happens in terms of development. Possibly the most major development now is the CTA’s improved ability to control downside risk.

The interplay between convergent and divergent trading styles seems to be very cyclical. Currently, the markets have reached a new low in terms of lack of divergence and lack of trends. RPM’s proprietary aggregate measure of general trendiness or momentum across major futures markets is at a record low, they have not seen such a low reading and such subdued price moves since the 90s. Values like these have historically signalled good CTA returns over the next quarter or so.

Have banking regulations gone too far? Unintended consequences of regulations created new major market risks:

Here is something that is starting to trouble regulators globally. Some of the larger banks no longer offer OTC clearing to their clients, but will only do it for their books. In essence, all investment banks seem to follow the same strategy nowadays, which is to just pursue the top 20 or the top 40 most profitable clients, and are happy with that. Major investment banks are saying now that they neither can nor want to offer clearing services to for example smaller clients, and in some cases even larger clients, like pension plans or insurance companies, as their business are unattractive from a capital adjusted perspective. Unless the client can offer interesting ancillary business, the return is just too small. This is a problem for the general real money industry and for the hedge fund industry, but the banks don’t necessarily care.

Consequently the problem goes back to the regulators. The banks are going to say, “We are now so constrained by the regulatory requirements that we have limited balance sheet to offer and can’t take any more business.” These themes are actually picking up now, and the regulators have started to worry about these items such as clearing, market liquidity and the potential impact for retail clients.

The 2015 Opalesque Nordic Roundtable took place end of October at RPM’s Stockholm office with:

  1. Mikael Stenbom, RPM
  2. Erik Eidolf, Nordkinn
  3. Thomas Stridsman, Alfakraft
  4. David Rindegren, Carnegie Asset Management
  5. Mikael Spangberg, Nektar
  6. Stefan Nydahl, IPM
  7. Renaud Huck, Eurex
The group also discussed:
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. Hedge fund's Italian raid leaves us in the dark[more]

    From Bloomberg: Ten years on from the financial crisis, bank balance sheets haven't become any simpler to digest for the average investor. Finance firms are big and leveraged; regulations have just become new instruments of complexity. That might suggest a potential windfall for any brainy numb

  2. New Launches: Crescent launches offshore cryptocurrency index fund, Jack Ma's private equity firm raises $2.5bn for latest fund, Franklin Templeton floats alternative investment fund, US giant TCW to launch global AI equity fund, Quantum Energy Partners closes latest fund at $5.6bn[more]

    Crescent launches offshore cryptocurrency index fund Crescent Crypto Asset Management, a cryptocurrency index fund manager led by Goldman Sachs alumni, announced the completion of its Series A financing and launch of its offshore Cayman fund. FBG Capital led the fundraising round with its

  3. Michael Spencer invests $40m in Europe-focused hedge fund[more]

    From the FT: Michael Spencer, chief executive of Nex Group, is backing a hedge fund start-up in London with an investment of about $40m made through his private investment group, according to a person familiar with his plans. The hedge fund, Viewforth Partners, is being launched by Richard Black, a

  4. Investing: Investors haven't been this bullish on U.S. stocks since 2015, U.S. hedge funds bet on retail, tech in second-quarter as economy sizzled, The world's largest hedge fund loads up on Alibaba, An $84bn hedge fund used Facebook's struggles to build a massive stake, Jana Partners jumps back into Facebook, adds stakes in Alibaba, Wells Fargo, Einhorn's Greenlight Capital slashes stakes in Apple, Twitter and Micron,Tiger, Tremblant, Columbus went big on Twitter before earnings[more]

    Investors haven't been this bullish on U.S. stocks since 2015 From Bloomberg: The bull run that has taken U.S. equities to record highs this year may be about to reach its peak, according to the latest survey of fund managers by Bank of America Merrill Lynch. Allocations to U.S. stock

  5. Activists: Elliott lawyer warns Korea better brace for activist funds, Activist hedge fund is seeking operational improvements at the antivirus company, Eddie Lampert details $500m offer for Sears's assets, Nielsen should get a break from the market[more]

    Elliott lawyer warns Korea better brace for activist funds From Bloomberg: The lawyer who advised billionaire Paul Singer in his proxy fight against Samsung Group says he's seeing a surge of interest from activist investors who view South Korea's businesses as potential targets. In