26/07/2011 Author: Shannon Hawthorne

Flow charting

Discerning the state of the hedge fund industry is no easy task, with ‘official’ data often contradictory. One thing recent figures do agree on, however, is that money is flowing back into the sector at a striking rate – recent HFR data puts Q2 inflows at an impressive $30bn. For readers of HFMWeek’s regular search and allocation stories, however, such positive news will come as no surprise. Looking back over our recent exclusives, we highlight the most notable investor trends of 2011 so far...

ASIA

Looking back
Despite a somewhat uneven performance – according to HFR, Asia (ex-Japan) strategies are only up 0.05% YTD, with only two positive months of performance so far this year – the demand for Asian hedge funds continues to increase, with many allocations coming from large multi-billion dollar investors.

Last month, HFMWeek revealed that the $6.9bn Arizona Public Safety Personnel Retirement System had discussed an investment of up to $50m to Asia-focused investment manager Pacific Alliance Group’s Special Situations Fund. The pension is discussing a further investment to the firm this month, this time to its Asia Opportunity Fund.

Going forward
After unveiling plans to more than double its hedge fund allocation to $10bn, the New Jersey State Investment Council, which manages the state’s $74.7bn retirement system, revealed to HFMWeek’s sister publication Asia FM that it was searching for a number of Asia-focused hedge funds as part of the move. “We would really like to look at some good hedge funds focused on India and China,” revealed Maneck Kotwal, investment officer responsible for hedge funds at the retirement system.

Last month, HFMWeek also revealed that the $10.5bn Ohio School Employees Retirement System (Sers) is considering allocating to Asia-based hedge funds. The pension notes that “although the Asia-based hedge fund community is much smaller than North America and Europe, there is significant capital market activity in Asia”.

LONG/SHORT EQUITY

Looking back
Often cited as one of the more popular strategies for investors taking their first steps into the hedge fund space, long/short equity has continued to attract investment in 2011, despite uneven performance.

The $300m South Broward Hospital District defined benefit pension plan made its first long/short equity investment in May, hiring fund of hedge funds (FoHF) firm Lighthouse Partners, while the $1.4bn Stanislaus County Employees Retirement Association also took its first steps into the space in plans first revealed by HFMWeek in April.

Going forward
Having only recently made its first foray into hedge funds, allocating $30m each to six global macro funds, the $5.6bn Wyoming Retirement System is also looking to invest in long/short equity funds later this year, CIO Trent May revealed to HFMWeek in May.

The New Jersey State Investment Council is also likely to allocate to the space when realising its planned Asia-focusing investments, with investment officer Maneck Kotwal revealing that the allocations will be “most likely in long/short equity strategies, where we would feel safe in finding somebody”.

On a somewhat smaller scale, the $178m Monroe County Employees Retirement System is set to hire a new long/short equity manager – despite the fact that the search is a result of the decision to terminate previous long/short manager Diamond Hill Capital following “disappointing” performance.

MANAGED FUTURES

Looking back
Previously one of the lesser-sought hedge fund strategies, largely due to investor concerns over a lack of transparency, managed futures funds have enjoyed a micro-renaissance of sorts in 2011, with a number of smaller pensions making their first allocations to the space.

Back in April, HFMWeek revealed that the $22m General Employees’ Pension for the City of Punta Gorda, Florida, was considering making its first allocation to the space. The $110m West Palm Beach Firefighters’ pension fund also invested $5m into Dublin-based CTA Abbey Capital, as reported in the same month.

Managed futures funds were not only the preserve of smaller pensions, however, with the $1.7bn Fort Worth Employees’ Retirement Fund and the $3.7bn Missouri Local Government Employees Retirement System both hiring Winton Capital Management this year, allocating $11m and $45m respectively.

Going forward
Barclayhedge data reveals that CTA funds’ total assets under management currently stand at $291.4bn, up from $267.6bn in 2010. And according to a report by Agecroft Partners, it’s a trend set to continue. “We are in the initial stages of seeing significant assets flows from institutional investors into this strategy”, managing member Donald Steinbrugge stated in the report.

CREDIT

Looking back
As part of a move to add ten new managers to its portfolio, as revealed by HFMWeek last year, the $8bn San Diego Employees Retirement Association (SDCERA) allocated $75m to the Blue Mountain Capital Management long/short credit fund, with plans to invest a further $75m into another – as yet undecided – credit relative value strategy in the future.

The City of Austin Police Retirement System, which manages around $507m in assets, also saw opportunities in the strategy, allocating $5m to Phoenix Investment Adviser’s JLP Credit Opportunity Fund, as reported in May.

Going forward
Following a change in legislation which allowed it to invest in hedge funds outside of its ‘alternatives’ portfolio, the $72.4bn North Carolina Retirement System (NCRS) is planning to hire a number of credit-focused hedge fund managers this year, having already made a start with a $500m allocation to FoHF Paamco as part of its credit portfolio in February (news, p.8).

Similarly, the $9.2bn New Mexico Educational Retirement Board (ERB) is preparing to hire a number of new single manager hedge funds as part of a new 20% opportunistic credit portfolio. The retirement system’s investment committee approved a $150m allocation to GSO Capital Partners back in February as part of the move.