Money managers under the microscope
Hedge fund stories from the past 24 hours from Reuters and elsewhere:
HedgeFund.net, which tracks industry performance and trends, in a report released this week estimated that total hedge fund assets rose more than 2.5 percent, or $47 billion, to reach $1.89 trillion at the end of last month. Nearly half that growth came from net inflows of $19.6 billion.
The hedge fund exodus from London’s West End predicted by some in the wake of plans for a 50 percent tax rate on high earners has so far failed to materialise, but some managers are nevertheless looking abroad.
Pedro de Noronha, managing partner at Noster Capital, told me over a full english breakfast at hedge fund central The Wolseley this morning that he would quit the UK if, as expected, the rate comes into force.
The infamous “2 and 20″ scheme once reserved for a few stars is now the standard. Master and mediocre managers alike charge the same top-tier prices. Yet 2 percent fees for assets under management plus 20 percent of a fund’s profits should be exceptional pay for the best managers, he said, not the rule.
“Pricing in the investment management business was very uniform, and it shouldn’t be,” said Howard Marks, chairman of Oaktree Capital Management, a Los Angeles firm that manages $60 billion alternative investments. “If markets are working right, different things have different prices.”
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.”
Nowadays most hedge fund managers who use leveraged trading strategies such as relative value to exploit pricing inefficiencies employ multiple prime brokers.
RAB Capital’s results this morning — showing an expected 32 percent fall in assets but signs of net inflows into its single-strategy hedge funds — also reveal how its managers are positioning their portfolios.
Despite a further 5 percent performance loss year-to-date at Special Situations, after last year’s big losses, performance at RAB’s other funds has been strong — the Energy fund is up 55 pct, the Global Mining fund 42 pct, the Gold and European Credit Opportunities funds 20 pct in H1.