Put Into Perspective: Assets Of Fund Of Hedge Funds Grow In US But Shrink Abroad by Skenderbeg Asset Management
“Any dead fish can go with the flow. Yet, it takes a strong fish to swim against the flow. In other words, what seems ‘hard’ at the time is usually, over time, right.” – James P. Arthur Huprich
Equity Market-Neutral Strategies Top Investor Wish Lists
Equity market-neutral strategies top hedge fund investors’ wish lists for the year ahead, while credit strategies are the least popular, according to Credit Suisse research.
In its annual hedge fund survey of 369 institutional investors, Credit Suisse found equity market-neutral – fundamental and equity market-neutral – quantitative were the two most popular strategies, with 34% and 30% of investors reporting demand for each strategy respectively. This is up from the demand of 18% for each strategy reported last year.
Here’s The Evidence That You Get What You Pay For When Investing In Hedge Funds
The past two years have been incredibly underwhelming for the hedge fund industry. Hedge funds fell by 3.64% on average in 2015 and by 0.58% in 2014, according to data from Hedge Fund Research.
That said, there has been a great deal of dispersion between the best performers and the worst performers, with some finishing 2015 up by more than 50% and others finishing the year down by more than 20%, according to data from HSBC.
Naturally, the less-than-stellar performance of the hedge fund space as a whole has renewed the heated debate about hedge fund fees. Historically, hedge funds have been paid through a compensation structure commonly known as the “2 and 20,” which means they charge investors 2% of total assets under management and 20% of any profits. The fees can vary from fund to fund, with some charging less and others charging more, such as “3 and 30.”
In a new report, Barclays’ capital solutions group suggested “2 and 20” may be becoming a “relic of the past.” Less than a third of the 110 hedge funds the bank surveyed for its report had a management fee higher than 1.75%.
The Fees Are Worth It
The Barclays report also analyzed the relationship between headline fee levels and performance to figure out whether more expensive hedge funds outperformed funds that were comparatively less expensive. After examining the net returns of a large number of hedge funds across different strategies for one year (Q3 2014 to Q3 2015), Barclays found that the best-returning quadrant was the one representing managers with the highest overall fees (2%+, 20%+).
“While a flaw in our analysis is that we looked at only a one-year period, the data does suggest that the best managers are confident of being able to generate strong returns and therefore demand higher fees,” the report said. Of course, this comparison focuses only on hedge funds, so it doesn’t compare the performance of hedge funds with that of much cheaper mutual funds or index-tracking funds.
Still, if you are going to put money into a hedge fund, it seems you get what you pay for.
Where The Black Swans Hide & The 10 Best Days Myth
How much effect do these outliers have on long term performance? Can the investor prepare for these anomalies, or are they truly ‘black swans’ that cannot be managed? In this issue we examine numerous global financial markets on daily and monthly time frames. We find that these rare outliers have a massive impact on returns. However, these outliers tend to cluster and the majority of both good and bad outliers occur once markets have already been declining. We critique the “missing the 10-best-days” argument proffered by advocates of buy and hold investing, demonstrating that a significant majority of the 10 best days and the 10 worst days occur in declining markets. We continue to advocate that investors attempt to avoid declining markets where most of the volatility lies, and conclude that market timing and risk management is indeed possible, and beneficial to the investor.
Fund-Of-Hedge-Fund Assets Grow In US But Shrink Abroad
North America-based funds-of-hedge-funds (“FoHFs”) underperformed their counterparts in Europe and Asia in 2015, but still managed to grow their asset base, even as European and Asia-Pacific funds saw their assets decline. These were the main findings of Preqin’s “Fund of Hedge Funds Outlook,” the featured article from the March 2016 Hedge Fund Spotlight, which reports that North America-based FoHFs saw their assets grow by $9 billion in 2015, continuing a streak of asset growth that dates back to 2011. Europe- and Asia-based FoHFs, by contrast, saw their AUM decline by enough to sink the global total by $12 billion.
The Harm In Selecting Funds That Have Recently Outperformed
We empirically investigate the investment results of commonly used fund selection strategies that involve redeploying assets from underper-forming to outperforming funds. Based on portfolios constructed using US mutual fund data over typical three-year evaluation periods, we find that investors who chose funds with poor recent performance earned higher excess returns than those who chose funds with superior recent performance. Our findings pose a challenge for asset owners: If past performance is used at all in selecting funds, it is the best-performing funds that should be replaced. Realistically, however, a policy of replacing successful funds with poor performers is unlikely to gain widespread acceptance. Instead, the practical implication of our paper is that asset owners should focus on factors other than past perfor-mance. We offer alternate criteria for selecting funds.
Investors Add To Hedge Fund Bets Amid Market Volatility
Investors pumped more money into hedge funds in March in seeking to shelter from the continued market volatility, data from hedge fund administrator SS&C GlobeOp showed. The SS&C GlobeOp Capital Movement Index, which calculates monthly hedge fund subscriptions minus redemptions at the start of each month, rose 0.82 percent in March, it said in a statement, after a gain of 0.59 percent in February.
“The March data continued the trend of recent months in which inflows have held fairly steady while outflows have run below year-ago levels,” said Bill Stone, Chairman and Chief Executive Officer, SS&C Technologies. Flows into and out of hedge funds normally occur at the start of the month or quarter. “During this time markets experienced significant volatility, including several sharp downturns,” Stone added.
5 Big Mistakes To Avoid When Choosing An Investment Advisor
Choosing an investment advisor is a very important decision that many investors rarely give much thought to. Some simply make a choice based on the recommendation of a friend or family member, while others stumble upon an advertising campaign or other flashy marketing piece. In my experience, people spend more time researching their next TV or computer purchase than they do in selecting the professional that will steward their nest egg. This is probably because there is instant gratification in the purchase of a new toy rather than the months and years it will take for an investment advisor to prove their worth.
Over the years I have spoken to hundreds (if not thousands) of investors that are searching for the right fit in managing their assets. Below are some of the biggest mistakes I see being made