For the full InvestHedge Billion Dollar Club listing, please click here
By Niki Natarajan
The year 2012 did not see the end of the world, as the Mayans predicted, but during the Chinese Year of the Water Dragon, the global fund of hedge fund community witnessed continued turbulence as the way money is invested in hedge funds continues to converge. Driven by recently empowered investors, many of whom are unwilling to take risks or embrace the volatility required to harness returns in the current global low-interest-rate environment, the Chinese Year of the Snake in 2013 will see further transformation.
As Davina MacKail points out, there will be less drama but, nonetheless, the lines will continue to blur between traditional FoHFs, managed account providers and hedge fund consultants in the turf war to advise on hedge fund assets, and increasingly other alternatives.
Prior to this converging world of alternative investing, knowing what one offered and why, was 90% of the sales pitch, the other 10% was communicating it effectively. The asset-gathering winners in the institutional space, until now, were those who understood how the consultant-driven pension fund market operated and therefore hired a good, former long-only, sales rep with a solid institutional Rolodex, comprising mainly investment consultants.
Now the rules of the game have changed: the investor is in charge of umpiring and many of the consultants are considered poachers by the territorial funds of funds that are slowly understanding that ‘investment solutions’ and ‘customisation’ are the new FoHF.
To play, the old commingled masters must adapt their way of thinking, because investing is no longer a case of opening a box of Lego and following the instructions on the lid: it is about piecing it all together to create something potentially much more spectacular and unique.
And because many FoHFs have more than a decade’s experience – some up to forty years – few pretenders to the hedge fund-investing throne are experientially qualified to do this successfully. That said, unless FoHFs adapt and find ways to collaborate with investors solving their problems rather than pushing products, the new generation will sweep up the assets, irrespective of experience.
Hedge funds have become so commoditised that they can be sliced and diced according to liquidity profiles, as part of a risk budget, slotting long/short equity funds into equity buckets and finding a home for more esoteric credit trades in the defensive fixed-income portfolios.
Investment solutions may be the name of the new game, but it predicates that the investors know what they want, why and when they want it, and where they want it – and across all asset classes, not just the hedge fund portfolio.
With FoHFs, consultants and managed account providers all offering a variation on the investment management and/or manager selection theme, and products and/or solutions in any shape and size, that challenge for the investor is about finding the right partner to make sure that, three years down the line, they do not manifest a funding gap.
Institutional memory seems to have already forgotten 130/30, the double leverage of portable alpha and all those other ‘solutions-driven’ fads such as CPPI (Constant Proportion Portfolio Insurance). And yet, picking a hedge fund advisory partner has become even more challenging, with performance seeming to slip down the list of investor selection priorities and pure gamekeepers being few and far between.
Kevin Gundle, senior executive officer of Aurum Funds in London, sums up the challenges facing the industry succinctly. “The challenges that we may confront would be justifying the case for hedge funds in the face of a strong equity market performance. The misconception that hedge funds and equities are directly comparable has unfortunately become mainstream. The case for hedge funds has not had the opportunity to be reinforced due to the muted performance over the last few years and the disappointments of 2008. The industry needs to convey the message that hedge funds are relevant and fill a specific role in investment portfolios.”
He adds: “Another challenge that the multi manager/FoHF industry is continually faced with is the threat posed by the asset consultants offering fiduciary management in implemented solutions. The potential for conflict of interest is high, making it difficult for FoHFs to compete on a level playing field. Availability of data on the performance of implemented FoHF solutions makes it difficult to compare performance.”
In fact, how can investors measure excellence in this new solutions-driven world? In our performance review we see that, contrary to popular belief, some FoHFs do perform and justify their fees, while the InvestHedge Awards for Investor Excellence on 25 September at The British Museum will once again showcase those fund of hedge fund investors that have performed over a long period of time.
In 2012, the global FoHF universe returned 3.87% net of fees, with many strategies and managers far exceeding this median. Meanwhile, the HedgeFund Intelligence Global Hedge Fund Composite index was up 5.97%, superficially explaining why many investors are being encouraged to invest directly to ‘save’ on fees.
Given that some FoHFs can clearly outperform the average hedge fund median, let alone the average FoHF, many believe that in a number of circumstances investing directly may be a saving now, but a false economy in the long run. Greg Fedorinchik of Mesirow Advanced Strategies takes this discussion to the next level by providing a cost-benefit analysis of both routes to conclude that only those with more than $500 million to invest directly are likely to see the benefits in terms of fees, due to the hidden and unreported charges that FoHFs house in their much-maligned fees.
That said, fee compression is one of the key challenges many members of the InvestHedge Billion Dollar FoHF Club see as an issue for them in the coming year, especially as the cost structures of FoHF businesses are coming under pressure, with margins being squeezed and costs increasing in non-alpha-generating capabilities such as compliance and dealing with increased regulatory requirements.
Despite being described as an industry in crisis or, worse still, a dinosaur model of investing, the largest FoHFs in the world with more than $1 billion in assets under management still run a quarter of all the $2.2 trillion in hedge funds. Taking into account the assets run through managed account platforms – those not already counted in the survey – 28% of the industry’s assets have professional oversight.
At the end of 2012, the InvestHedge Billion Dollar FoHF Club was made up of 101 firms managing $591 billion. Split between $403 billion in commingled vehicles, $121 billion in customised portfolios and a further $67 billion in advisory assets, the global FoHF industry has been hovering around the $600 billion mark since June 2009.
The top 101 has firms with assets ranging from $44.8 billion for New York-based Blackstone Alternative Asset Management – once again the largest firm in the FoHF universe – at one end of the spectrum to the niche $1.1 billion global equity/long short value investor, Berens Capital Management, also in New York, at the other.
In 2012, the top 101 FoHFs saw assets shrink by 1.7%, a loss of $10 billion despite the five new entrants – Mirabaud Asset Management, Thalìa, Persistent Asset Management, The Bornhoft Group, and the return of Rothschild HDF Investment Solutions after the purchase of HDF – adding nearly $12 billion to the total.
The universe of five new entrants saw their assets grow by 3.13% in 2012, although Thalìáaitself saw a drop of 11% in 2012, while Persistent Asset Management grew by 13.6% organically. Rothschild HDF’s 31.5% asset growth can be attributed to the merger of assets of the two Paris-based firms.
Mirabaud Asset Management, which saw flat growth in 2012, is one of three advisers to the soon-to-be 40-year-old $1.5 billion Haussmann Holdings FoHF, alongside Notz Stucki and Banco del Ceresio. The Geneva-based firm has made its debut in the rankings, not because it is suddenly large enough, but because its $5 billion invested in hedge funds has been counted for the first time in the rankings, as have those of Denver-based Bornhoft Group (see profile in InvestHedge, November 2012), which has a track record of 27 years’ investing in commodity trading advisers.
The equivalent of $10 billion has left the rankings in the form of the six groups that have dropped out. In the second half of the year, Tarchon Capital Management announced its decision to close its FoHF business, while The Capital Partnership’s assets fell below $1 billion.
In the first half of 2012, the rankings saw the removal of Coronation International, Gems Advisors and Mariner Investment Group, which have all stopped reporting assets, with the latter focusing on its hedge fund and multi-strategy fund business, while Signet Capital Management lost 22% of its assets, equivalent to $270 million, in the first half of the year to drop below $1 billion.
Mergers and acquisitions
M&A was the key sport in 2012, but most of the respondents to the survey believe that this will continue in 2013 as costs are squeezed, investors ask for more but pay less, and regulatory and operational costs continue to escalate.
There were four completed mergers between eight Billion Dollar Club members in 2012: Financial Risk Management with Man Group to create FRM; Kenmar’s purchase of Olympia Capital Management to create Olympia Kenmar; Union Bancaire Privée’s purchase of Nexar Capital Group and the assets including Ermitage that it has amassed; as well as Lyster Watson’s FoHF assets joining Crestline Investors.
In total, there were more than 15 FoHF mergers in 2012, including Permal’s bid to buy Fauchier Partners, from BNP Paribas Investment Partners, which has held a stake in the $6.29 billion firm since 2001, a deal that is due to complete this year. The merger creates a $24.1 billion firm that will precipitate Legg Mason affiliate Permal Investment Management, which has $18.3 billion, from its current seventh position to become the fourth-largest player in the world after Blackstone, UBS and HSBC Alternative Investments in 2013.
“Strategically, Fauchier Partners meets all of our criteria, for it accelerates the development of our institutional presence, enhances the European and Asian business, and strengthens the Permal employee talent pool,” said Isaac Souede, chief executive officer of Permal.
Asset assimilation will continue in 2013 as size seems to matter almost more than performance to those wanting to hire FoHFs to create bespoke portfolios. Crestline Investors, which saw its assets under management grow by nearly 11%, is taking advantage of the maturing industry and trend towards consolidation by opportunistically picking up businesses to strengthen its diversified hedge fund strategies business.
In terms of asset growth, 48 out of the 100 groups had flat or positive asset growth, with this universe averaging asset growth of 11.1% and adding more than $31 billion. In terms of asset growth, there are 16 firms that ended the year with asset growth of 20% or more.
Looking at organic growth, Aetos Capital was the firm with the greatest growth rate of 54.5% in 2012, adding $3.3 billion. Seven Bridges Advisors, Ironwood Capital Management, HFR Asset Management, Meridian Capital Partners and Private Advisors had performance growth ranging from 49.5% to 29.3%, but it is an incomplete picture of those firms’ assets, as the InvestHedge survey relies on SEC filings, whose reporting time periods do not match those of the survey.
The firm with the greatest growth in Europe is Swiss Capital Alternative Investments, which saw its assets grow by 35% in 2012, while Kenmar Olympia Group and Rothschild HDF Investment Solutions saw theirs grow by 34.7% and 31.5% respectively due to the merger.
Also in Europe, BlueCrest Capital Management saw its assets in the AllBlue self-invested FoHF grow by 20.8%, largely through institutional wins such as Camden and Lambeth pension schemes in the UK. AllBlue is also popular with US pension funds. While LGT Capital Partners, whose multi-alternative mandate from Hertfordshire County Council Pension Fund is not included in the 2012 totals, saw its assets grow by 20% last year.
In New York, SkyBridge Capital, Corbin Capital Partners, Magnitude Capital Partners, Optima Fund Management and Entrust Capital each saw their firm’s assets grow by 27.7%, 25.8%, 24.6%, 24.3% and 22.4% respectively. The biggest growth in assets in dollar terms is Blackstone, with asset growth of $5.5 billion.
Of the universe, 52 firms have seen outflows averaging 12.8%, equivalent to a loss of $41 billion. Exane Asset Management and SEB Alternative Solutions (the former Key Asset Management business) were the two biggest losers in terms of assets under management in 2012, at 35% and 32.7% respectively. In total, 15 groups had losses of more than 20%, including European-based groups such as EIM, Unigestion, Pioneer Alternative Investments, Axa Investment Managers and Lyxor Asset Management.
Despite its merger with Man’s stable of assets that include Glenwood, GLG and RMF, FRM’s assets have fallen by 23.6%, equivalent to $5.1 billion, the largest single dollar amount outflow in the universe. The next largest outflow in US dollars was from HSBC, whose assets under management in hedge funds fell by $3.4 billion.
BenchmarkPlus, InvestCorp Asset Management, Credit Suisse, NB Alternative Investment Management, Protégé Partners and PRS International Investment Advisory Service are among the US-based firms that have seen more than 20% of their assets flowing out in 2012.
That said, 58% of the global FoHF universe, with assets of $396 billion, is based in the US, and on average North American firms have seen their assets grow by 3.47%, adding $13.3 billion in 2012. Meanwhile the remaining 43 firms, with assets totalling $190.6 billion – based in Europe, Asia and the Middle East – saw outflows averaging 10.7%, equivalent to $23 billion.
The Super League – FoHFs with more than $10 billion in assets – is made up of 12 firms, 75% of which are US-based firms. On average the Super League, which has $254 billion under management, lost 2.15% of assets, equivalent to $5.6 billion.
The largest firm with the greatest growth rate is Blackstone, growing by 14%, followed by Morgan Stanley, which saw assets grow by 5.6%. BlackRock Alternative Advisors and Pacific Alternative Asset Management Company both saw assets grow by about 1.5%, while UBP Alternative Investment’s growth of 1.84% can be attributed in part to the merger.
Although the Super League may have 43% of the total universe’s assets, in terms of asset size, firms with more than $10 billion on average saw outflows. In addition to FRM, which saw 23.6% of assets flow out, and HSBC – the third-largest FoHF, which saw nearly 12% leave – Permal, ahead of its Fauchier Partners deal, saw outflows of 8.45%. Despite the Man merger, BlackRock leapfrogged FRM to take eighth place in the rankings. UBS Global Asset Management A&Q, with $25.5 billion and the second-largest firm in the rankings, and Mesirow Advanced Strategies, with $13.5 billion, both saw outflows of 5.7% and 5.2% respectively.
Grosvenor Capital Management, which now has $22.3 billion in assets, also saw 2.2% of assets flow out, equivalent to $500 million. The $22.9 billion managed by Goldman Sachs Asset Management in hedge funds grew by 0.32% in 2012.
Outflows also dominate the universe of those with assets of between $1 billion to $5 billion. It is this group that houses 14 of the 24 firms that have asset growth of more than 10%; yet, despite this, these 64 smaller FoHFs – with a combined $159 billion in assets under management – saw combined assets shrink by 3.5%, equivalent to $5.8 billion.
Seven Bridges is the fastest growing group in this group, with assets growing by 49.5%, while Exane saw the largest amount of assets leave, equivalent to 35%. In terms of size, Private Advisors – with $4.6 billion – is the largest, while Berens, with $1.1 billion, is the smallest firm.
Like Goldilocks, both the largest and the smallest FoHFs saw assets shrink, but the sweet spot of the Billion Dollar Club – firms whose assets grew by 0.72% on average, equivalent to $1.3 billion – is the $5 billion to $10 billion group. This group, which has $179 billion under management in 24 firms, only had 37.5% of its members posting outflows for 2013, while nearly 42% of the FoHFs are based in Europe.
Aurora Investment Management is the largest of this sub-ranking with $9.95 billion at the end of 2012, although it started 2013 with more than $10 billion under management, while Banca del Ceresio is the smallest, with $5.7 billion. Aetos has the greatest growth rate, growing by 54.5%, while Amundi saw its FoHF assets shrink by 28.7%.
For nearly 50% of the firms in the rankings to be growing must mean that assets are flowing into FoHFs, or that performance is significant. Thinking creatively and ‘alternatively’ will be the way that FoHFs start to thrive again. The best example in 2012 of looking outside the box came from Arden Asset Management, which saw its assets grow by 5.9% before its landmark deal was announced.
The $7.2 billion New York-based firm, founded by Averell Mortimer in 1993, created the Arden Alternative Strategies Fund, a registered investment fund under the 1940 Act regulations, and raised $740 million in one sitting. Mortimer realised that the defined benefit pension fund market was contracting – highlighted by fee compression as underfunded pension funds struggle to close funding gaps – but the defined contribution market was growing.
The US 40 Act FoHF market only has some $20 billion in assets at the moment, but figuring out how to tailor products for the defined contribution wrap market will allow some FoHFs new asset growth opportunities. So far, BlackRock, JP Morgan, Legg Mason (through Permal), Fidelity (with Arden), Wells Fargo (which teamed up with Rock Creek) and Franklin Templeton (with K2 Advisors) are among the mutual-fund brands that have affiliations to FoHFs and so the potential to make in-roads into what is likely to become a rich source of assets.
“The landscape for FoHFs is moving away from multi-strat commingled products in favour of more concentrated portfolios and specialised customised products that are tailored to deliver a very specific set of investment objectives. Additionally, we also believe that alternative mutual fund products, which are fund of hedge funds in a mutual fund structure, will be a large growth area as there is increasing demand particularly from self-directed retirement assets,” said Mortimer.
The industry still faces challenges in 2013, including consolidation and flows of assets to the bigger firms. The Year of the Snake is about continuing the transformation that started the previous year, but it will be less violent, primarily because the new paradigm has been accepted by most firms.
In fact, half of the FoHF industry now seems ready to eschew the term ‘FoHF’ as a description of what the industry does, and opinions are fairly equally divided when it comes to describing the new frontiers of hedge fund investing being drawn up by the convergence. More than 51% of the respondents believe they are now more than just FoHF, while 48.5% believe that the term correctly describes their offering.
Those at the forefront of the convergence, like Notz Stucki, see themselves as asset allocators, with hedge funds and FoHFs as an asset-class diversifier. Yet the majority that are ready to let go of the moniker ‘FoHF’ see themselves as providers of hedge fund solutions on both a discretionary and advisory basis.
Others, like Unigestion, prefer the term alternative investment partner. Under the umbrella of ‘alternative investment solutions’, the services that most of the firms formerly called FoHFs offer include commingled funds, but also customised mandates, advisory mandates, identifying managers for funds-of-one and risk management.
Firms like Gottex also have the ability to offer bespoke managed accounts, multi-asset endowment style products, private equity style real asset funds and portable alpha portfolios.
The challenge for all multi-managers, whatever they choose to be called, will be to adapt and implement solutions-orientated strategies because most FoHFs agree that the continuing trend for investors choosing to go direct will have the greatest impact on FoHF businesses.
Firms planning to stay the course will have to make sure they are set up to cater to the increased demand for customisation, as well as clients seeking more opportunistic allocations to hedge fund strategies.
Deutsche Bank’s 11th Annual Alternative Investor Survey stated that the demise of FoHFs has been exaggerated, with evolved business models attracting institutional capital, and that 58% of end-allocators say that the main benefit of FoHF allocations is access to niche managers, including smaller or younger funds. Indeed finding newer, smaller, under-the-radar managers is what many FoHFs are experts at.
Increasing regulatory requirements will also present challenges for many in the industry, putting further pressure on smaller players. However, the consultants offering implemented consulting are named by many FoHFs as a cause for concern in 2013.
The outgoing Year of the Dragon saw consultants make their mark firmly on the hedge fund-investing landscape. Groups such as Towers Watson saw their assets invested directly in hedge funds grow by nearly 36% from $14.8 billion to nearly $20.2 billion by the end of 2012; and, together with the $31.5 billion that Mercer has of its clients’ assets in hedge funds, it means that the consulting fraternity is a force to be reckoned with among hedge fund investors.
Specialist hedge fund consultants have been advising clients for a while now, but the convergence between commingled, advisory and customisation requirements of investors means that groups like Towers Watson are ready to be counted among the FoHFs as professional hedge fund advisers. Mercer, which has $2.9 billion on a fiduciary basis and $28.6 billion on an advisory basis, continues to prefer to be seen as a specialist consultant because of the dual nature of its client consulting and investment requirements.
But if just two London-based firms can allocate $51.6 billion to hedge funds, then tracking the global consultant allocation will start to show a fuller picture of investors’ advisers. For this reason, from September, InvestHedge will include a hedge fund consultant asset growth table for both fiduciary and advisory direct allocations to run alongside the Billion Dollar Club to track which consultants are growing in this market.
Interestingly, on its website, Albourne Partners – the largest hedge fund specialist consultant – states that 261 clients have more than $300 billion invested in alternatives, but does not specify how much is in hedge funds. Marketing itself as a provider of research and advice on “complicated assets” that it defines as “hedge funds, private equity and real assets”, seems to point to another area of convergence.
Now that hedge fund investing is becoming more commoditised, some FoHFs are expanding their remit and manager selection experience to include one or more of other alternatives such as property, private equity, commodities and infrastructure; subjects that will be covered in more detail at the InvestHedge Forum on 24-25 September at The British Museum, which will be themed ‘Capitalising on Convergence’.
Growth in managed accounts provides further evidence of hedge fund investing convergence
“The demise of funds of funds has been exaggerated, with evolved business models attracting institutional capital,” a recent Deutsche Bank Alternative Investment Survey stated. The survey found that 29% of those FoHFs surveyed saw new business in 2012 for bespoke portfolios.
As the hedge fund investing industry evolves with the end-investor ever more empowered to customise and create their own bespoke solutions based on individual needs and parameters, the managed account platform industry has grown and evolved, finally entering the mainstream of hedge fund investing.
In fact, due to the start of a new type of managed account platform that entered the scene in 2012, the industry as a whole experienced growth of nearly 16%. This newest player is InfraHedge, an infrastructure-only platform founded in January 2011 by Akshaya Bhargava and Bruce Keith (see InvestHedge, February 2013) that saw its assets catapult from zero to $7.61 billion in a year.
On this plug-and-play platform, which is backed by State Street Corporation, investors, including funds of funds, can design the type of platform they need and retain the investment management responsibility over the underlying assets.
Managed accounts, which in 2012 saw their assets grow to $57.85 billion, are now part of the investment armoury. Originally a banking product on which to create capital-guaranteed investments based on hedge funds, now it not only allows investors access to a smorgasbord of hedge funds, but also the tools and transparency with which to evaluate risk and create dedicated reporting.
The new business models enable clients to pick and mix hedge funds directly and/or ask their advisers to create bespoke portfolios of customised solutions around existing portfolios including the increased use of managed accounts by funds of hedge funds as a way of offering clients the risk management, transparency and reporting they need for their bespoke and customised solutions.
Funds of hedge funds – such as Permal and FRM, which are serious about getting into the customising/bespoke world of catering to investors’ tailored needs – are building their own platforms. These two groups alone account for $15.6 billion in new assets to managed accounts but, unlike the banking world, are also accounted for in the main FoHF survey.
That said, two of FRM’s clients – Universities Superannuation Scheme and Bayerische Versorgungskammer (BVK) – are investing directly, but using FRM’s managed account tools; so technically they are not classic commingled FoHF clients but rather ‘new-age’ clients. Such examples highlight the convergence that is occurring in the hedge fund investing space.
“The multi-manager model requires change and improvement – that is why successful funds of funds are developing their ability to provide solutions-orientated services, making it easier for investors to own hedge funds through tailored portfolios designed for their specific needs,” says Luke Ellis, president of Man Group, with oversight of FRM, Man’s $16 billion FoHF division.
“We see managed accounts and the transparency, liquidity and control they provide as playing an important role in this. Furthermore, large FoHF providers are increasingly happy to allow their institutional investors to co-invest in managed accounts alongside their FoHF and customised portfolios,” he adds.
These direct investors, usually with large portfolios to allocate, are keen to invest directly, often with the assistance of specialist consultants such as Albourne Partners and managed account platforms, as the assets still need to sit somewhere where trades can be monitored.
Until this survey, the assets of managed account platforms have been kept in a separate table. But the new funds of funds’ managed account platforms are essentially made up of the managers that the FoHFs invest with anyway – and as such would be counted in the FoHF survey.
They are now, however, presented on a platform for those investors that want to go direct so that the platform can access the transparency, risk management and reporting that they are looking for. In the early days of sell-side managed accounts, managers that the internal bank FoHF might not ever invest in would be included. These days, managed accounts are simply an interactive display cabinet for hedge funds.
For this reason, $16.5 billion in buy-side managed account assets for FoHFs such as Permal, FRM, Gottex and Sciens Fund Management are included in their multi-manager totals. Asterisks in the MAP table opposite denote whether or not the assets are included in the main multi-manager ranking.
That said, of a total of $57.9 billion in managed accounts, $41.4 billion of assets invested in hedge funds via the managed account structure are not included in the multi-manager rankings and may include the assets of FoHFs that do not have their own proprietary platforms.
“Nowadays many investors want to tailor investment solutions to their specific requirements through a managed account platform, not just by taking the traditional commingled investment route, preferring the greater transparency, control and flexibility that this route affords. Even on our own platform, around half the underlying accounts are customised specifically to our requirements, and include more concentrated portfolios, higher liquidity, more opportunistic mandates and tailored risk parameters,” says Roberto Giuffrida, executive vice-president, head of global business development at Permal in London.
As a fund of hedge funds group, FRM post merger with Man, which now has $16.5 billion invested in hedge funds, may have seen $5.1 billion flow out of its business as a whole in 2012, equivalent to an outflow of 23.61%. But the assets run on the managed account platform have grown by nearly 20% to $9.2 billion from $7.7 billion in a year highlighting the importance such platforms have when offering a variety of solutions to investors.
The additional $41.4 billion of assets invested in hedge funds via managed accounts and not accounted for via FoHFs includes those of asset managers with platforms that started out on the banking sell-side, such as those run by Lyxor Asset Management and Amundi Alternative Investments; these now offer advisory alongside their traditional FoHF and managed account offerings.
Hybrids such as these two Paris-based managed account pioneers continue to report their assets separately, with Lyxor seeing its MAP business growing by 1.9% to be the second-largest platform with $10.7 billion, while its Paris-based rival, Amundi Alternative Investments, saw its MAP business more than double its size in 2012 to end the year with 57.7% in assets that now total $4.1 billion.
Interestingly, both these French groups saw outflows of 20% and 28.7% from their respective funds of funds business, which now have $9.6 billion and $6.7 billion under management, confirming what many believe to be a continuing trend of using managed accounts to create bespoke investment solutions.
So important is the ‘investment solution’ business in the new paradigm of hedge fund investing, that last year Lyxor teamed up with Koris International to design investment solutions for distribution across continental Europe based on the funds available on the Lyxor Managed Account Platform.
Lyxor will manage the portfolios and Koris International will act as an independent adviser. The two firms will jointly market the investment solutions to European investors and money managers.
Jean-René Giraud, founding partner and chief executive officer at Koris International, sees this partnership as a reflection of the successful cooperation that has been running for almost a decade with Lyxor Asset Management. “We are delighted to roll out what we believe is a unique combination of asset allocation expertise with cutting-edge operations and infrastructure. Managed accounts are a smart and comprehensive way to gain access to the skill set of hedge fund managers in a transparent and controlled manner,” Giraud says.
As the hedge fund investment market moves more toward the provision of solutions, the partnership, which will last at least two years, will combine Lyxor’s managed account platform that applies liquidity and systematic risk control to alternative strategies, with Koris International’s extensive quantitative asset allocation technologies.
The investment solutions, which can be tailored to suit small institutions, family offices and private banks, will offer these investors a more dynamic alternative to investing in commingled funds of funds. The tailored solutions will combine fund selection, risk control and liquidity, as well as dynamic quantitative asset allocation.
Other managed account assets that are kept separate from the fund of fund numbers are managed accounts of bank sell-side providers such as UBS Liquid Alpha Platform and Goldman Sachs, which also separately offer funds of hedge funds in their asset management businesses.
The UBS Liquid Alpha Platform, which was launched in September 2012 (see InvestHedge, July/August 2012) and sits in the equities division of UBS, saw its assets grow by 37% to finish 2012 with $3.2 billion, while its asset management cousin UBS Global Asset Management A&Q, with assets of $25.5 billion – the world’s second-largest fund of fund business – saw outflows of 5.7% in 2012.
Deutsche Bank, which is currently re-organising its business and where the managed account platforms sit, had $11 billion on its platform at the end of the year and saw outflows of $2.1 billion.
The once trillion-dollar global FoHF universe, which at its peak in June 2008 included 160 firms, has seen a drop of 37.5% in terms of number of firms and 49.2% in assets under management since then. Pure funds of hedge funds may now only account for some 25% of total assets invested in hedge funds, but add in the money on managed account platforms and that share increases to 28%.
As Mark Twain reportedly said after hearing his obituary had been published in the New York Journal, “The reports of my death are greatly exaggerated”. So. too, are reports of the demise of funds of hedge funds, which are simply re-configuring how they manage hedge fund assets for clients who would like more control over the investment process.
InvestHedge Billion Dollar Club: Funds of funds with more than $1bn under management, 31 December 2012
* Estimated numbers ** 30 June 2012 figure *** From latest SEC Listing Bold = New entrant in 2012 † Total adjusted by $3bn for Haussmann Holdings advisory club ‡ Adviser on $1.5bn Haussmann Holdings
|Fund of hedge funds
||AUM $bn 01/01/12
|Blackstone Alternative Asset Management
|UBS Global Asset Management A&Q
|HSBC Alternative Investments
|Goldman Sachs Asset Management
|Grosvenor Capital Management
|Permal Investment Management¹
|BlackRock Alternative Advisors
|Pacific Alternative Asset Management Co.
|Mesirow Advanced Strategies
|UBP Alternative Investments
|Aurora Investment Management
|Lyxor Asset Management³
|JP Morgan Alternative Asset Management
|BlueCrest Capital Management
|Prisma Capital Partners
|Pictet & Cie
|Rock Creek Global*
|Arden Asset Management
|The Capital Holdings Funds Edmond de Rothschild Group /
|Gottex Fund Management
|Amundi Alternative Investments³
|Diversified Global Asset Management
|LGT Capital Partners
|Silver Creek Capital Management
|Banca del Ceresio Group‡
|Mirabaud Asset Management‡
|Axa Investment Managers
|HFR Asset Management***
|Evanston Capital Management***
|Aberdeen Asset Management
|Schroders NewFinance Capital
|Common Sense Investments***
|The Archstone Partnerships
|ABS Investment Management
|Corbin Capital Partners
|Harcourt Investment Consulting**
|Sciens Capital Management*
|Hall Capital Partners***
|InvestCorp Asset Management
|Optima Fund Management
|NB Alternative Investment Management*
|Hermes BPK Partners
|Ironwood Capital Management***
|Ramius Alternative Solutions
|Notz, Stucki & Cie‡
|Swiss Capital Alternative Investments
|Pinnacle Asset Management
|Kenmar Olympia Group5
|Northern Trust Global Investments
|Liongate Capital Management
|Stenham Asset Management
|Advanced Portfolio Management***
|International Asset Management
|Seven Bridges Advisors***
|3A - Alternative Asset Advisors**
|La Francaise Asset Management
|Ignis Asset Management
|Persistent Asset Management
|Rothschild HDF Investment Solutions6
|Meridian Capital Partners***
|Alternative Investment Group
|The Bornhoft Group**
|SEB Alternative Solutions
|PRS International Investment Advisory Service***
|Saguenay Strathmore Capital**
|Larch Lane Advisors
|Pioneer Alternative Investments
|Exane Asset Management
|Antarctica Asset Management*
|Dorchester Capital Advisors
|Berens Capital Management
(1) Excluding Fauchier Partners AUM (2) Including MAP AUM (3) Excluding MAP AUM (4) Excluding Permal’s AUM (5) Including Olympia Capital AUM (6) Including Rothschild AUM