The hedge fund regulations in Europe, known as the AIFMD, are considered the most daunting of all regulatory frameworks across the globe. The rules are not just hard to understand, they are also costly to follow.
Just last week, a credit-focused hedge fund, Finisterre Capital with $1.75 billion under management, had to launch a UCITS fund after one of its insurance clients threatened to pull capital from the existing hedge funds, Reuters’ Tommy Wilkes reports. However in this case, the high cost of compliance was being incurred by the insurer as new rules in 2016 will require them to spend more if they want to invest in offshore products that are not registered in EU. UCITS funds, on the other hand, can be sold to retail clients as well on easier terms.
Paul Crean seemed optimistic about their new offering
Finisterre’s co-founder Paul Crean, seemed optimistic about their new offering, despite the fact that UCITS funds cannot short bonds, which is one of the principal strategies that Finisterre specializes in. Crean said, “We believe this will appeal to other insurance investors, particularly in Asia and Europe, because of the Solvency II regulations”.
The flagship Finisterre Sovereign Debt Fund manages $745 million and is up 2.2% this year through August.
The Finisterre Sovereign Debt Fund mainly invests in emerging markets and has the largest exposure in Mexico, Kazakhstan, Turkey and Russia. This year has not been the best one for the credit long/short fund – returns were down in four out of the eight months, slipping 0.54% in August. The fund has managed a 9.5% annualized return since its inception in 2002.
Finisterre noted attractive opportunities on the short side
In August’s commentary, the fund noted that assets in emerging markets have repriced themselves at attractive levels. The fund saw value in Mexican 10 year rates and in long dated investment grade bonds. Finisterre also noted that there are attractive opportunities on the short side, like implied volatility in Korean rates and in EMs where current account deficits run high and CDS are still not priced correctly.
The managers commented that they do not believe in hoarding positions and making highly concentrated bets which would be destructive to the fund if even one of them turns sour.