Thu, 31/12/2009 - 09:07
The past 18 months have brought vindication of the approach to hedge fund investment offered by Crédit Agricole Structured Asset Management. The CASAM alternative managed account platform offers investors access to the returns of single hedge funds or a diversified portfolio of hedge fund investments within a risk-controlled environment.
To start with, the platform’s benefits include enhanced liquidity with weekly or monthly dealing days on our feeder funds and very short notice periods, typically no longer than five business days. The fundamental principles of our platform are a premier legal and operational set-up, strict monitoring and enforcement of risk guidelines, as well as full transparency on independently priced positions.
The oversight and risk control functions undertaken by CASAM start with comprehensive due diligence as part of our manager selection process as well as ongoing portfolio monitoring. Hedge funds are selected through a stringent iterative evaluation process that identifies established hedge fund managers with proven track records.
Our selection criteria aim to identify trading managers with a high-profile pedigree and spotless background checks, recurring outperformance against peers and a clearly-defined risk management policy. One must also consider a series of sustainability factors in selecting managers, such as a solid trading and operational infrastructure and minimum assets under management to ensure the viability of the hedge fund manager’s provision of investment advice.
When it comes to the legal set-up, our hedge fund managers are contracted as trading managers of segregated accounts with legal ring-fencing. They sign investment management agreements that contain features including compliance and investment guidelines defined in accordance with CASAM standards and policies in terms of risk spreading, risk budgeting and liquidity. Adherence to guidelines is monitored by CASAM, which conducts oversight and risk monitoring and mitigation of the portfolio and operational risks associated with the various hedge fund strategies present on the platform.
Our infrastructure enables us to monitor and verify each managed account’s net asset value on a daily basis. Within the CASAM managed account operational set-up, the daily valuation agent is an independent party and the fund administrator is a separate entity within the Crédit Agricole group, applying best industry practice pricing protocols.
When combined with favourable liquidity terms, all these attributes allow us to lower considerably the risk of operational blow-ups and dampen the volatility of our client portfolios by bringing more predictability in the returns of our hedge managed accounts with much reduced fat tail risks, thereby maximising expected long-term risk adjusted returns.
Multi-faceted and adaptive open architecture
The flexibility of the platform is vital in an economic and financial environment characterised by uncertainty and lack of consensus among investors. The building block approach is ideally suited to meeting the requirements of clients that often have sharply divergent perceptions of the market and requirements.
We take pride in the ongoing conversations between our dedicated platform analysts and portfolio managers and various industry participants, who provide us with insight and advice on the strategies and managers best suited to fulfil our business partners’ needs. CASAM is therefore actively engaged in a constructive peer-to-peer dialogue whose objective is to share market and industry knowledge in order to help our clients or prospective investors in the execution of their allocation ideas.
We are continuously trying to bring on board selected managers in areas where we believe we can add value to the various types of hedge fund-based products offered by our investors and the Crédit Agricole Group, including through structured products. We are, however, extremely mindful of not tipping the other way into over-diversification, which in our eyes could lead to reduced medium- and long-term alpha as well as hidden costs.
Clients are now more than ever highly conscious of the impact of fees and costs on long-term performance. CASAM works actively to ensure that investors receive value for money, from negotiation of highly competitive management fees without compromising on must-have services such as top-quality fund administration and independent third-party valuation.
Our long experience and economies of scale enable us to provide independent valuation, risk supervision and reporting as well as segregation of assets on a single platform at costs similar to what direct investment in the equivalent pooled hedge fund would entail.
An enduring partnership
Our managed account platform is different to those of many of our rivals in that CASAM is not only an established fiduciary, but also is wholly owned by Crédit Agricole Asset Management, one of the world’s leading investment management companies and itself a critical component of the Crédit Agricole Group. It is also notably not part of an investment bank, which shields it from many internal conflicts of interests. It therefore combines the appeal of institutional-quality services with the comfort of a trusted partner.
Our expertise lies in being able to provide and/or combine a broad spectrum of customised investment solutions from structured products to alternative investments. Our background in structured products brings with it a long-term focus, assisted by being able to rely on the financial strength and brand appeal of our parent group.
Since late 2008, client concerns have been as often about issues such as liquidity and risk management as performance. Although the pendulum may well swing back in the wake of outstanding hedge fund returns in 2009, CASAM is acutely aware of the importance of delivering on its promises of long-term capital preservation and diversification.
What has hurt the hedge fund industry over the past two years has been lack of accountability toward its investors. In the end it is not the many blow-ups that shake the industry to its core but lack of trust from existing and potential new clients. Last year, when investors needed their money back, CASAM returned it to them as they expected. Amid the biggest liquidity crisis in modern financial history, CASAM passed the ultimate stress test and won its investors’ hearts.
François-Régis Bocqueraz is global head of the hedge fund selection group at Crédit Agricole Structured Asset Management
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