Hedgeweek Interviews

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Updated: 20 weeks 1 day ago

Hedge funds advance 7.27 per cent in 2017

Tue, 12/19/2017 - 12:39

Hedge funds are up 7.27 per cent for the year, posting better performance compared to a modest 3.68 per cent gains last year, according to Eurekahedge’s final monthly report for 2017.

Asset base for the industry grew by USD188.2 billion in 2017, with USD94.7 billion of the gains in assets attributed to investor inflows and USD93.5 billion attributed to performance-based gains. This compares with an AUM contraction of USD20.0 billion in 2016 where investor redemptions stood at USD55.1 billion while performance-based gains came in at USD35.1 billion.
Almost 76 per cent of hedge fund managers have posted positive returns in 2017, their highest proportion on record since 2013. Around 29 per cent of the managers have posted gains exceeding 10 per cent this year while around 6 per cent of the managers have posted losses exceeding 10 per cent.
Fund closures continued to outpace launch activities for the second consecutive year with 490 funds liquidating in 2017 whilst the number of startups for the year stood at 451. Asia and North America have seen a net growth in fund population while Europe witnessed a decline for the third year running.
Asia ex-Japan investing funds have delivered the best returns globally and were up 19.89 per cent for the year. Assets managed by Asia-ex-Japan grew by USD19.8 billion year-to-date with USD6.2 billion attributed to investor inflows and USD13.6 billion attributed to performance-based gains. Within the region, Greater China mandated hedge funds were up 28.27 per cent for the year, outperforming the CSI 300 Index by 7.24 per cent.
North American hedge funds were up 5.66 per cent year-to-date and have received the highest investor allocations among all regional mandates with inflows of USD58.1 billion. This compares to redemptions totalling USD11.1 billion over the same period last year. On the other hand, investor allocations into Europe stood at USD23.4 billion as of 2017 year-to-date.
Average performance and management fees charged by new hedge funds launched in 2017 stood at 17.11 per cent and 1.26 per cent respectively, this compares with figures of 16.52 per cent and 1.41 per cent for 2016.
Relative value hedge funds posted the best returns among all strategic mandates during the month, up 0.89 per cent with their assets grew USD5.9 billion for the year, with underlying relative value volatility hedge funds posting impressive gains of 8.62 per cent in 2017 outperforming other volatility-focused hedge funds.
Distressed debt managers posted their sixth consecutive month of redemptions, totalling USD2.0 billion, the only strategy that posted redemptions for the year while recording modest performance-based gains of USD1.5 billion. Total AUM for the strategy has declined by almost USD0.51 billion year-to-date.
Average performance and management fees charged by new launches in Europe this year stood at historic lows, with average performance fees of 14.04 per cent being recorded while average management fees were down to 1.15 per cent. The USD545.6 billion European hedge fund industry grew by USD39.7 billion for the year. For details refer to the European Hedge Fund Key Trends Report December 2017.

offResults and performanceFundsFlag: alphaq

Digital assets and blockchain equities fund returns 24 per cent in November

Tue, 12/19/2017 - 05:26

Singapore-based OC Horizon FinTech has concluded its first month of activity in blockchain related asset investment, having achieved a 24 per cent return in November.

The firm says the fund is invested in a mixture of blockchain-related equities and digital assets, including both high market cap cryptocurrencies and strategically selected alt-coins.

OC Horizon says that its hedge fund has an initial target of raising USD150 million and is the first of its kind to place cryptocurrency assets within the reach of institutional investors.
The firm writes that until now, institutional investors have avoided investing in volatile cryptocurrencies – but consistent growth has convinced experts that blockchain technology-related assets can benefit investors who need the transparency, security, and compliance that a regulated hedge fund offers.

As a result, a worldwide race to introduce cryptocurrency assets to traditional investment portfolios is under way, the firm says. The greatest gains await those few fintech investment firms capable of introducing investors to these assets under the strict regulatory framework traditional investment securities enjoy.

OC Horizon’s leadership team consists of Dr Justin Chan, a former quantitative strategist and UCLA PhD, is one of OC Horizon FinTech's two hedge fund managers, alongside John DeCleene, a blockchain specialist and recent Tulane University graduate with an extensive background in US public policy.

The pair are advised by a team of experts from the United States, Hong Kong, and Singapore, the Cayman-registered fund aggregates experience gathered from numerous successful ICO launches and interdisciplinary research into blockchain technology and its underlying value proposition.

“The blockchain is going to change the world as we know it and now is the time to invest as an early adopter and grow with this revolutionary technology. With the total market cap of cryptocurrencies at less than 1 per cent of the total market cap for gold, there is still so much room for it to grow as more investors and merchants come to understand the value that this technology has to offer,” says Chan.

inhouse contentCrypto currencyBitcoinBlockchainFlag: alphaq

Lawson Connor and Fuchs Asset Management team up to expand ManCo services into Luxembourg

Mon, 12/18/2017 - 06:18

Two investment management firms have forged a partnership to offer a one-stop solution for ManCo services to its international client base of hedge funds, private equity and real estate funds.

Lawson Conner Group, a leading ManCo, compliance and regulatory outsourcing firm, is teaming up with Fuchs Asset Management, a management company, to expand its ManCo services into Luxembourg. Fuchs Asset Management is the asset management arm of a family-run finance group, located in Luxembourg, Belgium and Switzerland.

The partnership will give Lawson Conner’s clients access to integrated fund solutions and ManCo services in Luxembourg, including Alternative Investment Funds, Undertakings for Collective Investment in Transferable Securities (UCITS) and Reserved Alternative Investment Funds (RAIFs). Luxembourg is currently the largest fund centre in Europe and more than 75 per cent of UCITS funds distributed internationally are based in the country.

The move is a strategic decision for Lawson Conner to continue to offer the most flexible fund management options across the UK and European jurisdictions.

Clients of both firms will benefit from access to European markets and the partnership will harness the companies’ respective strengths across two main areas. Lawson Conner will continue to act as the leading provider of compliance and regulatory infrastructure to its clients, while Fuchs Asset Management will provide AIFM / UCITS compliance, risk, governance and portfolio management, as well as the ability to distribute funds to European investors through the Passport Regime.

Gerhard Grueter (pictured), Managing Director of Lawson Conner, says: “The demand from our clients to help them navigate through the ever-increasing complexities of fund management, compliance and regulations is a key driver for us to continuously find new solutions across our services spectrum. Today’s announcement of the partnership with Fuchs is another important step towards offering our clients fully integrated compliance and regulatory infrastructure solutions across different jurisdictions. This partnership will help us fully deliver on our strategy, giving us a strong set of new capabilities and robust foundations in a post Brexit environment. Fuchs Asset Management is the perfect partner to help us serve our clients in the long term.”

Timothe Fuchs, CEO of Fuchs Asset Management, says: “The relationship with Lawson Conner represents a powerful opportunity for Fuchs Asset Management to significantly expand our presence into the United Kingdom, a vibrant and very important market, and extend it to other parts of the world over time. Lawson Conner has clearly demonstrated its ability to apply its considerable resources and expertise to lead major market segments. We are excited to partner with Lawson Conner as we focus our combined energies to serve a broader range of clients in the fund management industry.”


Hedge funds up 0.62 per cent in November, says BarclayHedge

Thu, 12/14/2017 - 10:56

Hedge Funds gained 0.62 per cent in November according to the Barclay Hedge Fund Index compiled by BarclayHedge. The index is up 9.08 per cent in 2017, and has had 13 consecutive winning months during which it gained 11.20 per cent return.

“The possibility that the US Senate might pass a tax bill rallied domestic equity markets,” says Sol Waksman (pictured), founder and president of BarclayHedge. “For each of the past 13 months, the monthly close of the S&P 500 has set a new record high.”
Once again, the Technology Index powered upward with a 3.63 per cent return in November. Technology has had 12 months of gains in the past 13 months, and is now up 25.29 per cent for the year.
The Healthcare and Biotechnology Index bounced back from a 1.57 per cent loss in October with a 2.98 per cent gain in November. Equity Long Bias was up 1.63 per cent, Emerging Markets added 0.64 per cent, Distressed Securities were up 0.59 per cent, and Pacific Rim Equities rose 0.33 per cent.
Eight hedge fund indices lost ground in November. The Merger Arbitrage Index was down 0.79 per cent, European Equities gave up 0.57 per cent, Fixed Income Arbitrage lost 0.30 per cent, and Convertible Arbitrage slid 0.21 per cent.
All of Barclay’s 17 hedge fund indices are profitable after eleven months. Following the strong performance of the Technology Index, Healthcare & Biotechnology is up 18.70 per cent for the year, Emerging Markets have gained 16.40 per cent, Pacific Rim Equities are up 13.18 per cent, and the Equity Long Bias Index has added 12.67 per cent.
The Barclay Fund of Funds Index lost 0.03 per cent in November, but is up 5.66 per cent for the year.

offResults and performanceFundsIndexesFlag: alphaq

HFR launches blockchain, cryptocurrency indices

Thu, 12/14/2017 - 03:00

HFR has launched two new indices, the HFR Blockchain Composite Index and the HFR Cryptocurrency Index, the first family of indices designed to capture performance of hedge funds investing in this rapidly evolving space.

The HFR Blockchain Composite Index includes funds that invest directly in blockchain technology, cryptocurrency or other emerging blockchain innovations. Managers focus on how blockchain technologies have begun to, and will continue to, fundamentally change payments, banking, market trading structure, Internet of things (IoT), healthcare, remittances, supply chains, digital identity and more. In addition, key exposure themes include cloud storage, decentralised computing, digital investment platforms, distributed ledger technology and promising innovations involving token interconnectivity and transaction scalability. The HFR Blockchain Composite Index has two constituent strategies – Cryptocurrency and Infrastructure. It includes performance data starting in 2015 with annualised performance of +282 per cent since inception, punctuated by a meteoric surge of +1,522 per cent in 2017 through November.    
The HFR Cryptocurrency Index, a sub-strategy index of the Blockchain Composite, includes all funds which invest and trade in cryptocurrency directly, typically generating performance through an actively managed portfolio of cryptocurrency assets, including Bitcoin, Ethereum, Litecoin, Ripple and many other coins, as well as new initial coin offerings (ICOs). Managers may use a variety of trading strategies from discretionary techniques to multiple automated bitcoin trading algorithms to analyse trends and adjust their portfolios as necessary. These trading strategies are primarily Macro in nature, including both fundamental and systematic trend-following approaches, but may also include, Arbitrage and Momentum strategies. The HFR Cryptocurrency Index has annualised performance of +292 per cent since inception and has surged +1,641 per cent in 2017 through November.
HFR began tracking the first cryptocurrency hedge fund in 2013, though interest and growth in this area has surged in 2017 as a result of stratospheric price increases and broad proliferation of new coins via ICOs, as well as launches of listed futures contracts. In addition, trading platforms that enable trading and improve liquidity to these dynamic and evolutionary markets have expanded and become more secure.  
The HFR Blockchain Indices are rebalanced on a quarterly basis and are investable through tracker funds operated by HFR Asset Management. Index performance reflects a universe of over 20 products which is expected to expand rapidly into 2018.
“Investor interest in funds offering exposure to Blockchain technologies and Cryptocurrencies has surged in recent months as these innovations continue to move towards the mainstream and generate compelling opportunities for investors, portfolio managers, traders and other market participants,” says Kenneth J Heinz (pictured), President of HFR. “While the recent performance has been exciting, trading and investing in these evolving areas requires specialised expertise and involves substantial volatility and risks, both real and structural. Taking these risks into consideration, it is likely that the evolving fundamental disintermediation of traditional payment processing associated with blockchain and cryptocurrencies will continue to grow in an absolute sense and as a component of hedge fund exposures.”  

offCrypto currencyBlockchainIndexesFlag: alphaq

Technology is key to meeting demands for private equity reporting

Wed, 12/13/2017 - 05:37

Technology is playing a pivotal role in how fund administrators support the growing reporting needs of private equity (PE) groups. Those who have both the internal experience to handle PE funds and the technological capability to deliver effective services and reporting, are likely to be the best positioned; especially as more PE groups appoint trusted third party service providers. 

The push toward using third party administrators is largely institutional-driven. As investors look to diversify their portfolios, they expect reporting from PE groups to be similar to the reports received from hedge fund managers. 

“Increasingly, PE managers are choosing to not do their own accounting in-house and are outsourcing to a third party administrator,” confirms Chad Allen (pictured), Managing Director at UMB Fund Services “As an asset class, PE has been our biggest growth area in 2017.”

Such is the level of investor interest in PE – Preqin earlier this year estimated there was USD846 billion in dry powder – that we are fast approaching the high watermark of 2007, in terms of capital raised this year. Cambridge Associates estimates that if one includes co-investment activity, which is a non-reported figure, new capital flows for PE this year could approach USD240 billion to USD250 billion; just off the USD270 billion in capital raised in 2007.

As more institutional capital flows into the PE space, the level of expectation rises, from a reporting perspective. 

“We service quite a number of PE fund-of-funds (FoFs) and general partners like to see which portfolio companies the underlying investments hold. We can perform a full look-through to each portfolio company to provide transparency for the FoF. In addition, we have started to implement ILPA templates for reporting to limited partners. We can produce capital call, distribution and capital statements that are ILPA compliant,” explains Allen.

The ILPA template is a standardised reporting template developed by the Institutional Limited Partners Association. As a tool, the template is proving effective at helping general partners better communicate with their limited partners.  

Ultimately, says Allen, it comes down to investors wanting to feel comfortable with their investments, with the general partner, and wanting to have transparency relative to the fund’s performance. 

“The general partners need investors to help fund deals so they want to please the large limited partners. The institutional money, coming from the larger asset allocators, demands more transparency (than smaller investors),” suggests Allen.

Typically PE funds are only valued quarterly; however there can be a lot of activity during the quarter, such as calling capital and closing on deals. 

UMB Fund Services has built its systems to track all of a fund’s cash flows on a daily basis. The benefit to this is that general partners can perform accurate forecasting, have a clear insight into what money is coming in and going out of the fund and know where they stand at all times. 

“We are not only striking quarterly net asset values, we help managers throughout the quarter by giving them the timely information they need to make informed decisions.

“We have a proprietary accounting and reporting system called FastPro, which we believe gives us an advantage. PE is still somewhat of a burgeoning asset class, as far as fund administrators are concerned. As such, it is difficult to find software that can do exactly what general partner needs. We are servicing a variety of PE funds such as real estate, venture capital, buyout funds and each requires different information from the system. A proprietary system allows us to develop the software in a meaningful way to support our PE clients, so they can timely deliver funds to the market place,” explains Allen.

In terms of new technologies, he says UMB is looking at web crawlers, email listeners, OCR tools, data scraping tools, “in order to help us retrieve the underlying investment information, normalise it and have it interfaced into our system. It is something we have been looking at for quite some time and it is nice to see technology continue to improve to provide us with more real-life application capabilities.”

Regulation has also become an important factor as to why general partners face increased reporting requirements. Regulations now include FATCA, Common Reporting Standards, and Annex IV reporting under AIFMD in Europe, which PE managers have not had to deal with before. This is pushing PE managers to outsource administration as they seek out assistance in these complex reporting matters, mindful that they do not wish to become overly burdened in operational tasks that bring no value to their investors.

When asked what PE managers should look for before appointing a fund administrator, Allen refers to two points:

“First, you want to find an administrator that has experience and a good reputation. Even though an administrator might have great technology, if it does not have the experience (in servicing PE funds) it is not going to count for much. Second, if an administrator has great experience but lacks the technology capability to deliver a suite of services, the same logic holds true. You need a combination of the two. 

“We try to strike that balance. We have been servicing funds since 1991. We have also built a dynamic web portal where we can deliver information to our general partners and their investors. The portal is not just a way for us to push data, it is also a way for clients to interact with us. 

“For example, they can upload files to reduce risk associated with email communication and to manage the sharing of large files; they can submit demographic changes pertaining to their LPs; they can generate reports on an ad hoc basis. Our clients have access to the raw data and they are able to make modifications as to how fund information is presented and reported. They have a lot of tools at their fingertips.”

These are propitious times for PE managers and fund administrators as they both look to address increased reporting obligations as effortlessly as possible. One could argue that it is pushing what was once a very manual, in-house role into a more automated, external one, as PE groups become more comfortable having independent oversight of their accounting and other services.

“By having a third-party administrator, the LP is reassured that there is an independent entity overseeing cash controls in the fund. We are involved in all cash disbursements. We cannot act unilaterally; the general partner cannot act unilaterally. It has to be a joint effort and that reduces the amount of risk associated with fraud,” concludes Allen.

inhouse contentUMB Fund ServicesFund administrationTechnology and software solutions

Cboe bitcoin futures trading volume totals more than 4,000 contracts on first day of trading

Tue, 12/12/2017 - 04:35

Cboe Global Markets’ Cboe bitcoin futures (XBT) traded a reported 4,127 contracts in their first day of trading. XBT futures debuted Sunday, 10 December, at 5:00 pm CT, the beginning of Global Trading Hours. The first trading session closed at 3:15 pm CT on 11 December.

The Cboe Futures Exchange (CFE) daily settlement price for the front-month Jan Cboe Bitcoin (XBT) future for the December 11 session was USD18,545.
Some 20 trading firms actively participated in the December 11 session. Cboe previously announced that all transaction fees will be waived1 throughout the month of December.
Over the last five years, the total value of all bitcoin outstanding (market capitalisation) has grown from less than USD1 billion to over USD262 billion, with daily notional turnover on 8 December, 2017 exceeding USD21 billion. The total value of all cryptocurrency tokens outstanding is now approximately USD423.7 billion. 

offCrypto currencyBitcoinTrading & Execution

Investors see alternative assets as an important diversification tool in uncertain markets, says AllianzGI RiskMonitor Survey

Mon, 12/11/2017 - 11:49

Institutional investors are increasingly turning to alternative assets to diversify portfolios as they navigate an environment characterised by low yields, geopolitical concerns and a growing set of investment risks, finds Allianz Global Investors, one of the world’s leading active investment managers, in its annual RiskMonitor survey.

Consisting of 755 institutional investors, representing USD34.2 trillion in AUM across North America, Europe and Asia-Pacific, the RiskMonitor survey found that seven out of 10 respondents said they now invest in alternative asset classes. Diversification is the No1 reason for these allocations, cited by nearly one-third (31 per cent) of investors – the most common driver of alternative allocations. Other reasons mentioned by respondents include a low correlation with other strategies (19 per cent), higher returns than conventional debt or equity instruments (17 per cent) and the potential for reducing overall portfolio volatility (11 per cent).
But the research finds that nearly half of investors (48 per cent) would invest more in alternatives if they felt more confident about measuring and managing any risks associated with these asset classes. This is particularly relevant for sovereign wealth funds (66 per cent) and banks (55 per cent), compared to pension funds (44 per cent), insurance (48 per cent), family office (47 per cent) and endowment and foundations (38 per cent). More than three-fifths (62 per cent) say they need better tools to manage the risks associated with alternative assets.
Margaret Frost (pictured), head of UK institutional, at Allianz Global Investors, says: “We are seeing alternative investments being increasingly deployed by institutional investors to solve a variety of diversification, income, and risk management needs.”
“Although it may seem mainstream for some investors, it’s still an underutilised asset class that could help investors meet the return objectives of their portfolios.”
Demonstrating the versatility of alternative investments, institutional investors weighed in with strategies they are using to achieve particular goals.
Real estate equity (30 per cent), infrastructure equity (30 per cent) and relative value/arbitrage strategies (24 per cent), among others, seem to be the most popular strategies for institutional investors when they are looking to diversify or invest in strategies that have low correlation to traditional asset classes.
Private corporate equity (49 per cent) is used to generate higher returns along with event-driven strategies (30 per cent) and infrastructure equity (27 per cent) while real estate and infrastructure debt (37 per cent) are considered to provide a reliable income stream.
For risk management, 23 per cent use relative value/arbitrage strategies, 20 per cent macro strategies, 16 per cent trading strategies and 14 per cent infrastructure debt.
A further 19 per cent use other illiquid alternatives in their efforts to manage risk.
Meanwhile liquid alternative strategies – trading strategies (22 per cent), macro strategies (17 per cent), event-driven strategies (17 per cent) – seem more popular when it comes to tail hedging.
The research underscores the potential benefits for investors of investing in alternatives. For example, nearly two-thirds (64 per cent) of those who allocate to alternatives feel prepared to deal with investment risks – compared with only 51 per cent of investors without alternatives allocations who feel similarly prepared.
Given that asset class diversification is the most popular risk management strategy among the respondents, this greater preparedness seems to stem from the role that alternative assets can play within these strategies. In addition, 44 per cent of investors said that alternative investments are necessary to protect a portfolio from tail risk.

offSurveys & research

SEC delays introduction of N-PORT filing as it looks to boost EDGAR security

Mon, 12/11/2017 - 03:46

The Securities and Exchange Commission (SEC) is delaying the implementation of rules requiring large mutual funds to submit monthly details of their portfolio holdings to the Commission while it improves the security of its EDGAR filing system which was hacked in 2016.

For the first nine months after the original Form N-PORT compliance date of 1 June, 2018, larger fund groups will maintain the required information in their records and make it available to the Commission upon request instead. Smaller fund groups will have to comply with the requirements one year after larger fund groups begin filing the form.
The delay as the Commission carries out an assessment of it cybersecurity risk profile was announced by Chairman Jay Clayton (pictured), in May 2017.
"Today's Commission action is a prudent step as we continue our work to uplift EDGAR and other systems and assess our data needs, including how and when we collect market-sensitive data," says Clayton. "An important component of today’s release is the requirement that larger fund groups maintain - and Commission staff have access to - the information required on Form N-PORT."
The Commission adopted Form N-PORT to require registered investment companies to report enhanced information about their monthly portfolio holdings in a structured data format. Filing of Form N-PORT through the EDGAR system will begin in April 2019 for larger fund groups and in April 2020 for smaller fund groups. To ensure that investors do not lose access to important information, the Commission is requiring funds to continue filing public reports on existing Form N-Q until they begin filing reports on Form N-PORT using EDGAR.  

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