Decomposing FoHF returns
Where and when funds of hedge funds add and lose value
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08/09/2010
Editor's view: 9 Sept 2010
It’s interesting how one deal can often summarise the tenor of the times. Last week’s rubber stamping of the Man-GLG tie-up by the former’s shareholders may have been a formality, but in the wider context of the hedge fund sector, the tenets underpinning the move are far more interesting.
In its broadest sense, the deal, which is due to be formally completed next month, is indicative of the whole sector’s current move towards merger. For Man and GLG this is based on reach, sales power and the benefits of diversifying respective strategy offerings. For smaller funds the rationale is much more basic – survival.
HFMWeek has devoted space and time over the past few months to studying the direction of capital. While we’ve tried incredibly hard to discern cash flow to small and nimble managers, the rather harsh reality is that – beyond buoyant emerging markets – this isn’t really happening. Data, so often more eloquent than words, from HFR suggests that the lion’s share is still going to those with scale.
This is clearly good news for the likes of Man and GLG, but it leaves smaller managers in a quandary. Stuck in a vicious circle, many are contemplating relationships that will push joint levels of AuM up to the standards acceptable to institutional investors. As a result, ‘open to joint ventures’ and ‘looking for a strategic alliance’ now pepper the languages of new launches, in the same way that ‘managed accounts’ and ‘Ucits’ broke into the fund management lexicon 12 months ago.
Whether contemplation will turn into action remains a key point. However, with initiatives like Foxley Capital (HFMWeek, 15 July) attempting to cohere individual expertise into workable frameworks, there is definitely a move to build bigger businesses. Businesses capable of taking a leaf from a current political tenor: greater reach through a workable coalition.
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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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