The institutional outlook
A recent survey of institutional hedge fund allocators gives insight into current and future allocations
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21/07/2010
Editor's view: 22 July 2010
Journalism’s palette extends to mostly black, with a smidgen of white. Hardly a spectrum of colours, but effective enough if you want to paint an unsettling picture. Hedge funds frequently fall victim to this particular school of art; a series of unsubtle brush strokes rendering the industry as the unacceptable face of capitalism.
The latest story to add to this distorted portrait is Armajaro’s purchase of a substantial amount of the world’s raw cocoa supply. Largely reacting to the conventional forces of supply and demand, the fund manager has still become the poster-boy for the ‘unacceptable face of speculation’; stories that last did the rounds in 2008, when oil was nosing up to $150 a barrel.
There is a big snag here. Firstly, these stories completely negate the legitimacy of the futures markets, a series of legal and perfectly viable financial contracts. Secondly, there is nothing synthetic about Armajaro’s purchase. A physical transaction, with an exchange of cash for assets, this deal was completed the old-fashioned way, with the firm storing its 250,000 tonnes of cocoa in warehouses in Liverpool and Rotterdam.
Nor is Armajaro stockpiling the produce, as it waits for prices to skyrocket. Sources suggest that – despite some criticism from the globe’s chocolate manufacturers – the fund already has deals in place with a number of large producers.
If the press can confuse the simple nature of this deal, they can easily fail to appreciate the legitimacy of commodity futures. These markets are well-regulated and are running smoothly. Recent price hikes in the value of commodities are not the result of rampant speculation, but based on good intelligence that supply chains are faltering and crops are less bountiful than anticipated.
Changing regulation means commodity futures are already becoming more transparent – clearly a good thing – but the current bleak press coverage is perfectly poised to create the sort of scare-regulation that has led to the current mess of the AIFM Directive – a disproportionate response that has clearly borrowed from the dark media palette.
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What's in a name? Glasnost Hedge Fund
Phillippe Gougenheim, formerly of Man Group and Unigestion, is busy plotting his next hedge fund move, Reuters reported this week. The industry veteran plans to launch a $50m fund in June that can shield investors from movements caused by the influence of politicians on markets, with a particular focus on the eurozone. “My idea is to be everything that hedge funds are not: liquid, transparent, and with a focus on capital protection,” Gougenheim told the newswire.
Hence, in theory, the name. Glasnost, a Russian word, translates roughly as openness and was used to describe Mikhail Gorbachev’s policy of transparency and freedom of information towards the end of the Soviet Union. The strategy was designed to reduce corruption, which was rife at the time in the Soviet government and Communist party.
Gougenheim’s version of transparency will aim, instead, to generate interest among investors while making solid returns too. The fund will offer weekly liquidity with three days’ notice, and will disclose all positions to investors on a monthly basis. It is due to be launched in June and domiciled in Cayman. Parent company Gougenheim Investments is reportedly hiring a COO, portfolio manager and marketing staff.
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