Funds Hub

Morning Line-Up: Goldman, clearing houses, Hargreaves

News and views on the asset management industry from Reuters and elsewhere:

Goldman and Clive Capital to launch commods index - FT

Clearing houses target direct links with fund managers – Financial News

Hargreaves resists revealing fund commission – ThisisMoney

Morning Line-Up: euro losses, Tories, Ucits

News and views on the asset management industry from Reuters and elsewhere:

Hedge funds hurt by bets against euro – WSJ

The $1.8 mln apartment and Ivy League fiancee of hedge fund manager accused of insider trading – Daily Mail

Are hedge fund managers the Tories’ trade unionists? – BBC blog

Ucits hedge funds struggle to raise assets under management over 100 mln euros – Hedge Funds Review

Dare you buy a fund from your bank? – Telegraph

from Global Investing:

What fund managers think

Bank of America-Merrill Lynch's monthly poll of around 200 fund managers had a few nuggets in the June version, aside from the usual mood-taking.

Gold is too expensive.  A net 27 percent of respondent thought it overvalued, up from 13 percent in May. Then again, the respondents to this poll have reckoned gold is too pricey since September 2009.

The fall in the euro should be tailing off. A net 14 percent reckon the single currency is still overvalued, but that is way down from the net 45 percent who thought so in the May poll.

BP is good for pharma. The net percentage of fund managers who remain overweight in energy stocks plunged to 7 percent in June from 37 percent in May as oil has continued to spill into the Gulf of Mexico.  The stock beneficiaries have been "dividend friendly" utilities, telecoms and pharmaceuticals.

China's growth is slowing. A net 27 percent of investors reckoned China's economy will weaken from where it is now over the next 12 months. That probably has mixed blessings given that investors both are expecting China to pull the world along the course of recovery and are worried about its economy overheating.

Overall, the poll showed fund managers to be cautious about the world economy but not giving up on riskier assets.

Reuters reporters head for the engine room

Reuters will be holding a European funds summit in Luxembourg this week, piggy-backing on the ALFI spring conference. It’s a useful opportunity to take stock of a startling couple of years for the industry, as well as looking ahead to the shape of the sector for the years to come.

We’ll be speaking to a host of senior industry players from both sides of the fence, from the top performing fund managers to the people that make the industry tick; Luxembourg got a jump on the rest of the fund market by being the first to leap on the UCITS train back in 1988 and now houses much of the sector’s administrative machinery as it becomes truly cross-border.

There will be a focus on trust, and we’ll be trying to get to the bottom of fund firm plans to win back clients who were burned during the credit crisis while keeping their fees and margins as intact as possible. Luxembourg was also the venue for the latest attempt by investors to gain restitution after losing money in Bernard Madoff’s Ponzi scheme, and the summit gives us a chance to press regulators on what they will do offer protection to those caught in future scams.

There’s also an intriguing debate to be had over the future of the UCITS fund model itself. Hedge funds are helping to raise some eyebrows as they move to bring their products to the retail market (and charge more to do it), and some in the fund industry are calling for a twin-track regulatory structure which offers retail investors a guaranteed venue where their innocent eyes are shielded from the bright lights of shorting and derivatives allowed by UCITS’ latest incarnations.

Watch this space for live blogging as the summit kicks off.

from Global Investing:

The art of being passive

Hundreds or even thousands of  "active" fund managers are competing to add alpha to beat benchmark indexes, be it in stocks, bonds or alternatives.

The market is so efficient, historical performance is no guide to the future. It's nearly impossible to find a reliable method to pick advisers who deliver the best industry returns year in and out. There are also costs, from visible ones such as management fees and custody and administration expenses to "below water" costs such as trading commissions (due to higher turnover), bid/ask spread (price to buy, another to sell) and market impact costs (larger buy/sell orders affecting price).

Given this, is there a point in investing in active funds? What about just diversifing your assets through passive indexes?

This is the philosophy behind London-based fund Frontier Capital Management, run by Mike Azlen.

Azlen told a briefing in his Berkeley Square office this week how a passive approach beats active investment most of the time.

Frontier's fund invests in 8 classes and over 15,000 securities in asset allocation which closely mirrors one by endowment funds such as Harvard and Yale University. Azlen reckons average actuve fund expenses would be around 2.3 percent (or 9 percent for emerging market active funds).

from Commentaries:

Don’t hold your breath for European flotations

A web-based survey of more than 40 European institutional investors by investment bank Jefferies shows most -- 83 percent of those who responded -- are not expecting a re-opening of the IPO market in the UK and Continental Europe before the middle of 2010.

Only 23 percent of the analysts, portfolio managers and dealers surveyed reckon the IPO market will re-open by the end of this year.

Seems the world is still split on what type of companies will be floated though:

"40% of respondents believe that classic growth stories, similar to the deals priced in the US with their tech themes, will be best received at the early part of the cycle. However, 46% believe that more defensive growth companies will dominate."

Some other interesting tidbits: A third of those polled said they would only buy shares in the IPO of a profitable company, half think GDP growth is a pre-cursor to IPO activity taking off again and liquidity is key, with an expected free float of at least $100 million the starting point.

All food for thought for anyone thinking of floating or spinning off a business. After all, it usually takes months to get them off the ground. 

Are there any positives in the EU’s new hedge fund rules? Watch GLN’s David Malamed

David Malamed, partner at international law firm Gide Loyrette Nouel, talks to Hedge Hub about the positives, as well as the negatives, of the EU’s draft law on Alternative Investment Fund Managers.

from Global Investing:

Falling on deaf ears

The European private equity industry today published its response to the proposed Alternative Investment Fund Managers directive that seeks to place controls on the industry.

In what it must hope will be seen as a carefully considered and constructed response to the European Commission's hastily drafted and ill-thought-out proposed directive, the European Private Equity and Venture Capital Association -- the voice for private equity in Europe -- calls for the threshold for reporting on its companies' activities to be lifted to 1 billion euros assets under management from 500 million.

It argues that private equity firms smaller than that specialise in managing small and medium-sized companies and should be subject to national legislation.

EVCA also wants a grandfathering clause introduced so firms existing funds that use no leverage and have no redemption rights (the vast majority of all unlisted private equity funds) would be exempt from the directive. It argues that failing to do this could result in termination of these funds "with disastrous consequences for the industry and its portfolio companies".

The big question is who in Europe is listening?

Having already gained a surprise concession in the published draft, which lifted the reporting threshold to 500 million euros from an expected level of 250 million euros, private equity may be seen as pushing its luck by asking for further leeway.

While the Socialists lost ground to the Conservative right in the recent European Parliament elections, it would be a mistake to think that the left wing coalition leader Poul Nyrup Rasmussen will be any less strident in his call for stringent legislation on private equity and hedge funds alike. The right wing Governments in France and Germany have been just as loud in their demands for legislating of the industries.

You can’t win ‘em all

 Ah well, even superstar hedge fund managers can’t always get their timing spot on.

U.S. hedge fund boss John Paulson had been sitting on a 300 million pound profit on his bet against British bank Barclays just three months ago, but by holding on for too long has seen most of that gain wiped out.

Paulson held a 1.2 percent short position in Barclays last September when new disclosure rules came in, but on Tuesday he cut it to less than 0.25 percent. His entry price is not known, but the shares were at 350p in September and crashed to 55p in March, before soaring to 316p by Monday’s close.

New York-based Paulson, who has made billions betting against U.S. banks and some European lenders including RBS, looks to have still made at least 50 million pounds on the Barclays bet. But he may be further aggrieved after the stock fell sharply after he closed out, following a massive share placing.

(See also Odey’s Barclays boost)

Quality control

After last year’s record poor performance, investors may view a warning that the quality of hedge funds could get worse with a certain degree of irony.

However, according to the Hedge Fund Standards Board’s chairman Antonio Borges, this is one of the negative effects on the industry that proposed EU laws could have.

What he calls the ‘protectionist element’ of the draft — whereby the EU market could be shut to fund managers from outside unless their host countries adopt similar rules — could mean large hedge funds in London gain a comfortable market position without having to face up to competition from the huge U.S. hedge fund industry.

“It’s not going to kill the industry, because the industry will survive,” Borges told a briefing at Axa Investment Managers this week.

“But there will not be competition from U.S. managers. The quality of the industry will deteriorate quite markedly.”