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How was 2014? Where are opportunities in 2015 ?

4 experts share with us their perspectives and analysis on the Alternative UCITS market.

Andrew Dreaneen

How was 2014 in terms of sourcing new funds and raising assets?

2014 has been very positive for AUM growth on the Schroder GAIA platform up from $3.3bn at the end of 2013 to $5.5bn today. In terms of sourcing new managers we continue to be very selective and have added by way of example John Paulson’s merger strategy at the end of June 2014 – the fund has one of the longest and strongest track records in the merger arbitrage space and already has c $580m. As we look forwards we are very excited about our pipeline as we are in conversations with a number of very high quality US and European based managers who run a variety of different hedge fund strategies.

What is your perceptions on investors’ demand? Strategies? Risk/returns?

We continue to see strong demand from investors across multiple geographies and multiple channels. Demand in early 2014 was very strong for longer biased equity long short and event driven strategies. We continue to see demand for these strategies as well as low net / market neutral strategies focussing on equity and/or credit. In addition we are seeing strong demand for discretionary macro managers and a recent pick-up in demand for CTAs given the very strong returns generated in 2014.

Stephane Berthet, Executive Director, Head of FundLogic Alternatives Platform Morgan Stanley

Stephane Berthet

This year, we have seen two key trends: (i) the effect of Alternative Investment Fund Managers Directive (AIFMD) and (ii) diversification of our investor base.

A large majority of non-European based Hedge Fund managers have started considering structuring themselves as UCITS funds post AIFMD. We believe we will continue to see this into next year as the full effect of AIMFD comes into play. Specifically, we have seen interesting from US-based Hedge Fund managers, due to the ease of them being able to set up a European UCITS Fund. They are able to outsource the structuring and administration and leverage off the European distribution capabilities and asset raising of the respective platform. We have tended to see an increase in interest in managers not only looking for a platform, but at particular platforms. Managers are far more specific as to what they expect from a platform now.

Across the market, inflows over the last year have exceeded expectations.

Our platform specifically saw a noticeable increase in inflows during the course of the year. Our asset base not only increased, but our investor base has become more diversified. We have seen even stronger investments from private banks and fund of funds, but also saw inflows from asset managers, family offices and insurance companies. During the year, we predominantly saw outflows as a result of more volatile performance from certain managers.

In the market, we have seen many new Event Driven, Market Neutral and Emerging Market Funds being launched over the last year. We are currently looking to expand our Macro and Credit offering in 2015.

Looking at the UCITS Alternative Index series (as at 26 November 2014), there was large variation between the strategy types this year, with CTAs up +12.10%,

Equity Long/Short up +2.76%, Event Driven up +0.97%and the UCITS Alternative Index Blue Chip up +1.32%. On our side, CTAs had a very strong year in comparison to previous years. The performance of our Equity Long/Shorts were varied, and depended on region and sector focus.

Helmut Fischer, founder of Queens Gate Capital Advisors.

Helmut Fischer

• Alternative UCITS funds became mainstream in 2014 as AuM increased with flows coming from private banking and institutional investors alike


• The winners of 2014 are the big UCITS platforms which have the first mover advantage with the relevant distribution channels


• And of course ETF platforms with traditional asset managers in-between feeling the pressure.


• Anything non-UCITS was hit by European dis-harmonisation stemming from local AIFMD implementation, the change in local private placements rules and taxation for some countries Investor demand:


• Still valid: good past performance is the most convincing argument for investors to buy into a strategy


• Investors become more critical of elevated fee structures based on insufficient performance or lack of capital preservation


• The low interest rate environment leads to investors looking for yield everywhere. Strategies offering yield pickups in the credit space have seen particular good inflows. The high demand has certainly lead to a compression of risk premia.

Gregory Le Buhan, Product Manager, Lyxor Asset Management.

Gregory Le Buhan

Lyxor Asset Management is looking to add in 2015 up to five UCITS funds across different strategies to its hedge fund platform. We are particularly interested in adding managers running US long/ short, US event driven equity strategies as well as specialized credit strategies.

US long/short equity and long/short credit strategies are something we are missing and something the market is missing, as is emerging markets.

We summarize our approach to find out new strategies and managers as follows:

• As with our managed account platform, identify the highest quality hedge fund managers that can be converted into a UCITS fund
  
• Look at the UCITS effect on those managers: liquidity, removing non-eligible assets, capacity constraints. We want complete confidence that the strategy will work under the UCITS framework
  
• Ensure those selected managers can work in the Lyxor risk-controlled framework that has been tried and tested over several market crises
  
• Conduct a market analysis to gauge investor sentiment. Is the interest there for a particular strategy?
  
• Structure the fund accordingly by negotiating the best terms for investors for which fees and TER remain a key focus.

We prefer ideally to wait live funds to reach a critical AUM size before launching new products, so that we can put strong sales & marketing efforts on each program.

Lyxor currently has 3 hedge fund-style UCITS offerings on its flagship managed account platform, who gathered more than $1bn of AuM after 2 years of existence. 3 funds is a small percentage of the overall 100 hedge funds on our platform. But UCITS would be a big push for the firm in future. The 3 incumbent UCITS funds have been a real success with performance and risk, and therefore asset gathering.