Money managers under the microscope
Out of the woods
The hedge funds industry may be finally emerging from the woods after last year’s debacle. The Credit Suisse Hedge Fund Index is up 9.69 percent in the year to date, with some strategies, like convertible arbitrage (up 30.7 percent) and fixed income arbitrage (up 16.07 percent) delivering bumper returns.
It’s all very different from those dark days at the end of 2008. Charlie Porter, CEO of Thames River Capital, which is split 55 percent hedge, 45 percent long-only, says most firms were focused on survival. “No one knew where their businesses were. A lot of hedge funds have disappeared over the last year but there were probably too many of them.”
He says new firms are now starting up again - albeit at a slower rate than before. But it remains to be seen whether mainstream firms will continue to flirt with absolute return, after products like 130/30, which take both long and short positions, performed so poorly.
Aymeric Poizot, a senior director at Fitch Ratings, believes many absolute return products disappointed investors because they weren’t diversified in terms of their performance drivers. “You can’t make alpha if you don’t have breadth or depth. You need to be able to take many uncorrelated, diversified bets,” he argues.
Cultural issues bedevilled some mainstream firms attempting to run their own absolute return processes and it is questionable whether some offerings can survive in their current form. Certainly, the labels are likely to change. “130/30 is largely a horse’s arse,” says Porter. “It has proved popular for some US institutional usage but in the UK retail space, the good products are few and far between.”
However, he sees the growth of absolute return within the traditional investment industry as a positive development. “If products can be created that more reliably generate consistent outcomes for investors, it must be a good thing,” he says. “