Money managers under the microscope
As EU countries and the European Parliament thrash out final details of the AIFM Directive on hedge funds, particularly over the treatment of foreign fund managers, two reports lend firepower to those calling for a tougher line to be taken.
In its latest Financial Stability Review, the ECB says the financial crisis showed there are problems associated with hedge funds’ business models and they can add to market stress during volatile periods.
And a report from the European School of Management and Technology raises “disturbing questions” about investors’ willingness to chase performance actively at all costs, regardless of risk.
The claim is that investors back investment styles that have done well over the past three quarters (even though the volatility of hedge fund styles means top-performers can often underperform subsequently), leading to the danger that momentum investment takes hold, pushing up the price of “overheated” securities.
For those tiring of the squabbling over the European Union’s AIFM directive, at least the rhetoric continues to impress.
The EU threat has certainly made pension funds more bullish, and this week they were threatening to gang up on “arrogant” hedgies to force through far stricter terms on performance fees. “Institutional investors are totally disillusioned with funds not delivering what was on the tin,” Philip Read, chairman of the British Coal scheme, told chastened managers at the Hedge 2009 conference.
The growing discomfort among pension funds over EU plans to regulate the hedge fund industry has prompted another public pronouncement, this time from Dutch schemes with assets of about 450 billion euros, including APG and PGGM.
We’ve noted the potential pivotal role the pension industry could play before, but as yet there hasn’t been an appreciable softening in the tone adopted by the hardliners. Their standard bearer Poul Nyrup Rasmussen called London Mayor Boris Johnson “out of touch with reality” after the much-lobbied blonde tried to strike a blow for the alternatives industry on a vist to Brussels this week.
Hedge fund stories from the past 24 hours from Reuters and elsewhere:
Hedge funds bet big on BofA – Reuters
Top plays by hedge funds in Q2 - Reuters
Edinburgh hedge funds feel Madoff effect – Bloomberg