23/06/2010 Author: Elana Margulies

Sand, sea and SEC

The annual Gaim international conference provides as reliable a snapshot as any of the state of mind of the hedge fund community. HFMWeek visited Monaco's glittering coast to hear talk of hedge fund allocations, with a cautious eye on regulation and due dilligence

While managers gathered in a stormy south of France last week, for Monaco’s annual Gaim International event, pondered the labyrinthine twists of EU and US regulatory developments, investors jetted in with a different set of priorities. Following a fallow year, many were looking to invest and seed new funds. Deploying money was, along with ongoing regulatory upheaval, one of the main topics of discussion, providing a degree of comfort for managers buffeted by a difficult May.

If many of the investors were eager to beef up their hedge fund exposure and seeders were looking to help out early-stage managers, there was a crucial unifying caveat – investors of all stripes have definitely started to become more cautious and thorough in their due-diligence process, applying greater scrutiny to firms. With managers reacting in kind, this year’s event offered a greater variety of structures, ranging from the illiquid to the quasi-retail, all offering heightened levels of transparency.  

When it came to choosing between investing in traditional hedge fund structures versus some of the latest trends, including the ever-expanding Ucits III universe – particularly from liquidity hungry funds of hedge funds (FoHF) and continental institutions – and more traditional managed account structures, the new breed seemed to be winning the allocation battle.

Opting for the latter, Dublin-based Abbey Capital, which runs global macro and managed futures multi-manager funds, has continued to prefer managed account structures when selecting underlying managers. Tony Gannon, founder, said Abbey’s multi-manager portfolios would benefit and be more saleable because of daily transparency of positions and exposures.

“This transparency helps us perform in-depth risk analysis on a daily basis and ensure the integrity of our portfolio construction,” he said. Last year, Abbey transformed its flagship fund to a managed account structure to offer daily liquidity and high-level transparency to its investors.

Alberto Maria Finali, founder of Symposium Capital Management, a New York-based advisor to family offices, was one investor at the event who argued that wealthy families have also been much more careful in managing their hedge fund exposure, with larger family offices in particular requesting managed accounts.

“Family offices are questioning the hedge fund industry on the fraud components, fees and what they are buying,” he said. When it comes to the strategies they prefer, Finali said this year, families have looked at highly liquid macro strategies and distressed debt.

It appeared that family offices were not the only ones looking to place capital into macro and distressed debt. Hedge fund seeders were also gearing up to incubate early-stage hedge funds in these areas. SEB, a Northern European bank, is looking to seed a handful of hedge funds in its maiden fund over the next year. Mikael Spångberg, SEB’s head of seeding and incubation, told HFMWeek that it would deploy capital to a variety of strategies, all liquid in nature, including global macro, FX and fixed-income, along with long/short equity, credit or event-driven strategies.
“In the fixed-income markets, we think that the absence of less proprietary capital creates more opportunities,” he said. “The changes in regulation such as Solvency II will impact real money investors and their allocations.” (See news, p8).

EU-regulated Ucits vehicles remained popular, but also divided opinion on the conference floor. While many managers were looking to launch Ucits-compliant versions of flagship funds, delegates were also warned that debuting these offerings should not be marketed as a panacea to the problems of the past, particularly as the structures still have the ability to lock up investor money.

Daniel Solomon, president of Lyford Group International, which is contemplating rolling out a Ucits III version of its global macro strategy, was one Gaim attendee who was cautious of marking out the strategy as some kind of ultimate solution.

“There’s a common assumption that the regulatory standards designed to protect retail investors are more stringent than those designed to protect institutional investors,” he said. Investment is clearly returning to the industry and new products are blossoming, but investors and managers alike are clearly cognisant of the fact that, following the problems of the past, no structure is bullet-proof.