Funds Hub
Money managers under the microscope
The hedge fund barbell
The fledgling market for hedge fund secondaries may be becoming barbell-shaped, according to Hedgebay.
The firm, which provides a market for those wishing to buy and sell illiquid hedge fund stakes, said there is growing evidence that trades are happening either at very high or at very low prices.
In November, for instance, the highest trade took place at 97 pct or net asset value, while the lowest was at 29 pct.
It seems that some investors are willing to pay close to NAV for higher-quality funds that are difficult to get hold of.
Others will buy into highly illiquid funds and will be prepared to wait several years in the hope of a bumper return, as long the deal is done at a bargain basement price.
The developing markets in hedge fund secondaries provide much-needed liquidity for those hedge fund investors needing cash and fed up with a fund’s long redemption terms.
But it’s still an opaque world, where permission from the hedge fund manager is needed before a trade can take place. Investors will surely welcome the further development in these markets.
Opportunities in the listed sector
Despite this year’s rally, opportunities remain in the listed hedge funds sector, according to analysts at Numis Securities.
A year ago the future of the sector looked in doubt, the broker writes in a note out today, as discounts to net asset value reached 40 percent and investors scrambled for liquidity in the wake of the collapse of Lehman Brothers.
But after the sector’s subsequent shake-out, as a number of funds wound up or returned capital, share prices have risen and discounts have closed — they are now at 15 percent.
Nevertheless, stockpickers can still find interesting ideas, the broker claims.
Numis says it favours Dexion Absolute, Absolute Return, BH Global and BH Macro among more liquid funds.
Among less liquid names it likes Signet (one of its corporate broking clients) and FRM Credit, which are both on discounts of more than 20 pct.
And it also sees some short-term opportunities — for instance, MW TOPS is on a 12 pct discount but is expected to offer an exit to shareholders at a 2 percent discount in April next year.
Dealing with stress
Hedge funds’ awful performance figures have been splashed all over the media for some time, but the effect this is having on the funds themselves could potentially be of deeper concern to investors.
According to a report by Moody’s, entitled “Market turmoil increases stress on hedge fund operations”, there are a multitude of potential dangers to watch out for as fund performance deteriorates and cost pressures grow.
For example — some hedge funds keen to save the pennies have combined previously independent jobs such as fund manager and portfolio valuer, affecting the quality of its operations, says the report.
The higher likelihood of legal action by investors disappointed by poor returns, meanwhile, could take management’s eye off the ball and affect a fund’s operations.
Meanwhile, cutting middle or back office staff could potentially affect the way the fund calculates the key net asset value measure or records its trades, while budget cuts could leave a fund’s IT system behind the times and affect the information it produces.
However, most worrying perhaps is the report’s conclusion that a breakdown in procedures or systems could “result in inappropriate/unauthorized cash transfers”.
The $50 billion question is — does market stress mean more frauds?
