Decomposing FoHF returns
Where and when funds of hedge funds add and lose value
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16/06/2010
Editor's view: 17 June 2010
With BP’s toxic gumbo curdling the special relationship, while malfunctioning Euro-bonds throw markets into crisis, casual observers could be forgiven for thinking that Europe has succeeded in scaring off its transatlantic cousins. Add AIFM to the equation and the transformation of the region into a protectionist, debt-ridden fortress appears complete.
Yet, cracks are appearing in this unappealing edifice. In an industry that is defined, if anything, by innovation, investors and non-EU managers are surmounting the potential problems of AIFM, best encapsulated by the draft’s crushing marketing stipulations and the possible death of the private placement regime.
A number of US managers have caught the Ucits-bug and, using the Merrill Lynch and Deutsche Bank platforms, are planning launches. Not only will this circumnavigate a decapitated private placement regime, it will also allow US managers to tap new sources of European cash.
Anecdotal evidence suggests this could already be happening. German pension funds are expressing an interest in American managers’ Ucits products – a bellweather of future success.
For strategies not suitable for the highly liquid nature of Ucits structures, there are other options. Sicavs and Qifs are both viable, while the possibility of scything off European investors into EU-domiciled managed accounts is driving new business ideas like John Lowry’s GTD Partners and its Dublin-based, US-manager focused, manage account platform.
Investors are also doing their bit. Following Bacon’s elliptical, “if the hill will not come to Mahomet, Mahomet will go to the hill,” large European pension funds are actively contemplating setting up US and Asian ‘rep’ office as they seek to mitigate the AIFM’s marketing restrictions.
None of this is a perfect solution, and for smaller managers and investors, the AIFM will still make life uncomfortable. However, in the face of innovation, and, to some extent, industry compromise, EU politicians should really think again about their more draconian instincts.
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