Negative investment trends on the other hand tend to hit all investors at pretty much the same time.
There is always an exception
Deutsche Bank’s latest research shows a recent trend among institutional investors that retail investors may not want to follow – the return of the hedge fund.
It is wrong to tar every hedge fund and hedge fund strategy with the same brush but as far as private clients are concerned hedge funds are nothing short of the devil’s investment class of choice. Yet in a few years time they may start nudging their way back into their investment plans.
In today’s City AM, Marc Sidwell gives the example of Man Group, the world’s largest listed hedge fund, whose share price plunge saw it leave the FTSE 100 last year while it suffered five consecutive quarters of net asset outflows – with clients pulling out $1bn in Q1 alone – up to and including Q4 2012. Its chief executive and finance director left, the former to be replaced by GLG founder Manny Roman, as it also sought to cut hundreds of millions of pounds in costs.
But now its share price is on the rise, up from below 90 pence to above 110 pence this month alone and, in some quarters at least, Roman’s accession is eagerly and positively anticipated.
Deutsche Bank’s Alternative Investment Survey 2013 expands on this, with one trend that both retail and institutional investors have shared for the past couple of years at its forefront – designing portfolios with a risk-based approach rather than a strict asset allocation model.
The bank says hedge fund flows could hit $2.5trn by the end of this year, an 11% increase on 2012, with $123bn coming from new money and $169bn from market returns.
An individual audience
One explanation for this is that investors are harking back to what hedge funds were traditionally set up to do, providing stable returns, with low correlation to equities and bonds, with relatively low volatility.
Deutsche Bank’s research was done with institutional investors – pension funds, insurers, consultancy firms, endowments, private banks and family offices, so for their needs and with their scale, any fund manager who can demonstrate such stability, particularly in the low return environment that is likely to continue for another couple of years at least, are set to do well.
Retail investors are after the same thing so will they follow this hedge fund trend? I doubt it…
Man Group bought GLG Partners back in 2010 partly in an attempt to diversify its own revenue stream, partly to offer investment propositions that were not driven by a machine as its AHL strategy is.
It offers a mix of funds-of-funds, long only and long/short strategies, the latter being onshore absolute return funds within a Ucits structure – the retail investor’s investment wrapper of choice – which is an implicit admission that there are two audiences to serve and each has a need for a different solution.
The FSA is already clamping down on anything it sees as unsuitable, and unregulated, for use within individual portfolios. Offshore hedge funds are right up there in such a remit.
The FSA’s replacement (FCA + PRA) will come down even harder on the side of caution and do anything within its powers to stop such fund structures being made available direct to investors.
Hedge funds, therefore, remain the preserve of the institutional investor.
