Decomposing FoHF returns
Where and when funds of hedge funds add and lose value
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28/07/2010
Editor's view: 29 July 2010
Like Paris in the spring, the lure of the Ucits space is proving a heady experience for many managers. First Europe fell for the charms of these onshore products, now the Americans are joining in a communal swoon.
As HFMWeek exclusively revealed last week, John Paulson and Barton Biggs are at the vanguard of a group of US managers hoping to benefit from launching Ucits funds. With approximately 500 of these products, holding $80bn, in circulation – that’s an average of $6.25m per fund – it’s abundantly clear that not all of these vehicles will magnetise cash.
However, as any manager will tell you, success is as much about preserving existing assets, as winning new mandates. And for some – although the potent Biggs and Paulson brands can probably be discounted – launching a Ucits can defend existing European holdings, as well as ‘break’ a brand into new territories.
US managers launching a European product aren’t necessarily coveting the interest of French and German pension funds, or the loyalty of British retail investors. In many cases, it’s about preserving the integrity of a fund’s existing capital, and giving non-US investors what they want, by scything off European allocators from those that are happy to remain in a Cayman vehicle.
If US managers are making a play for foreign investors, it’s interesting to see how European firms are keen to extend their own reach, with a push for US capital.
A few years ago, the twin guiding principles of hedge fund management suggested that, in the not-too-distant future, the majority of investment would be institutional, while the dominance of US investors would subside as UK, European and emerging market allocators became more bullish.
The first prophecy has come to fruition; however, for most managers, the US is still the crucible of cash. With US endowment funds re-engaging with the space, it appears that the US will remain the hedge fund focal point for some time, which explains why Gartmore, GLG and Brevan Howard are all ramping up US marketing efforts.
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What's in a name? Petra Capital Management
Formed in 2005, New York-based Petra Capital Management soon forged itself a reputation as one of the hedge fund industry’s best-known investors in the commercial mortgage-backed securities (CMBS) market.
Founder Andy Stone, an expert in real-estate debt from his time at Solomon Brothers and Credit Suisse First Boston, would even go on to be described as a ‘rock star’ in the field. His choice of moniker for his hedge fund project certainly lends itself to Stone’s background – and more than just in name and reputation.
Petra is, of course, a historically and archaeologically significant city in Jordan, renowned for its architecture cut into the rock face of its central valley. The rock-carved collection of tombs, temples and waterways is one of Jordan’s most famous symbols and tourist attractions, not to mention a regular in popular culture – featuring in films such as Indiana Jones and the Last Crusade. Unesco, which made the city a World Heritage Site in 1985, described it as “one of the most precious cultural properties of man’s cultural heritage”. Most pertinently though, Petra actually means ‘stone’ in Arabic.
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