Funds Hub

Morning Line-Up: 2010 returns, expert networks, ETFs

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

Hedge funds offered weak returns in 2010 – Reuters

Hedge fund scandal shakes expert network industry – International Business Times

ETFs try to outdo money funds – WSJ

Nortel pensioners could gain control of funds – The Star

S.Korea NPS eyes funds for energy, resources – Reuters

from Reuters Investigates:

Morbid money-spinners

If the life settlements market seems ghoulish, here’s a British scandal which isn’t doing the image of the business any favours. It’s one of the worst the country’s seen.

Around 30,000 mainly elderly investors in the UK put their money into a company called Keydata, hoping to make a little extra cash to fund their own retirement with the promise of a healthy return.

What they were buying sounded kosher, even if it did depend on how fast their wealthy American counterparts were dying. Of course, the investors may not have known that.

As is so often the case with these things, the projections were a little optimistic. And then some other irregularities blew up. Around 100 million pounds went missing, one of the business’s partners dropped dead in Singapore and the investment company was shut down by the regulators, leaving British pensioners like Tony and Pam Tobin out of pocket.  The Serious Fraud Office is investigating.

Tony and Pam Tobin

Undeterred, the other key character behind Keydata is determined to fight the regulators’ decision.  "I am someone who can make the impossible possible," he tells us.

It just gets worse for funds of hedge funds

Funds of hedge funds are taking a greater share of the pain in the industry’s downturn.

Even as overall outflows from hedge funds slow, redemptions from fund of hedge funds are accelerating. 

Figures this week from Hedge Fund Research showed that while overall hedge fund redemptions fell in Q1 to $104 bln from $152 bln in Q4, fund of hedge fund redemptions actually rose.

Investors pulled out $85 bln from funds of hedge funds in Q1, up from $50 billion in Q4, meaning in the first three months of the year they accounted for majority of industry outflows.

Time lags may be a factor — funds of hedge funds often put in redemption requests on underlying funds long before they have to pay out to their own investors.

But the Madoff scandal, in which several funds of funds were caught up, still overshadows the industry.

“Some people looked closely (at Madoff) and missed the structural weaknesses, or for one reason or another didn’t look closely enough and because of performance accepted those types of things, when with the benefit of hindsight they shouldn’t have,” said HFR President Ken Heinz.

Staying positive

There seems to be an endless wave of bad news hitting the hedge fund industry at the moment — gates and suspensions, record poor performance, the Bernard Madoff scandal and so forth – but there are still one or two reasons to be positive.

According to a survey of institutional investors by alternative assets data group Preqin, conducted in January (and therefore after the alleged Madoff fraud came to light), only 8 percent said they were no longer confident about hedge funds and would reduce investments.

By contrast, 26 percent said they would be increasing their allocations this year.

This appears to be a more positive picture than for high net worth individuals, who, according to some anecdotal evidence, have become more cautious on hedge funds.

Institutions such as pension funds, in contrast, tend to have time horizons running into decades, so a year of bad performance is not necessarily the be all and end all.

They have also seen equities, which constitute a far greater portion of their portfolios, plummet last year, leaving hedge funds, relatively speaking at least, looking quite good.

Having followed wealthy individuals into hedge funds and helped fuel the industry’s massive growth of recent years, they could end up supporting it through the difficult times.