Hans Schlaikier, Hedgeweek

Hedge funds make healthy gains in October… Henderson acquires H3 Global Advisors… ASIC redefines ‘hedge fund’…

Hedge funds delivered healthy gains in October as global markets trended upwards during the month. The Eurekahedge Hedge Fund Index was up 1.40 per cent during the month, while global stock indices outperformed as the MSCI World Index gained 3.75 per cent in September.

Key highlights include:

  • Hedge funds raised USD100 billion through asset flows in 2013 as at end-October
  • Total assets in the hedge fund industry stand at USD1.91 trillion, set to cross the highest level on record by end-2013
  • Assets in Greater China focused funds reached USD12.9 billion, the highest level on record
  • Asia ex-Japan hedge funds have outperformed the underlying markets by more than 5 per cent October year-to-date
  • Japanese hedge funds remained ahead of other regions, up 22.68 per cent

Equities gained traction after the US shutdown ended. Positive macroeconomic data throughout the month as well as the expectation that the US Federal Reserve will postpone tapering, added further impetus to global markets.

All regions posted positive returns for the month with Asia ex-Japan focused funds delivering the strongest gains for a second consecutive month. The Eurekahedge Asia ex-Japan Hedge Fund Index was up 2.03 per cent. Hedge funds focused on India and Australia/New Zealand delivered the strongest gains amid strongly rallying markets — the BSE Sensex was up 9.21 per cent, while the ASX All Ordinaries Index gained 3.88 per cent.

Greater China focused funds gained 1.67 per cent, while the Hang Seng was up 1.52 per cent and the Shanghai Composite declined 1.52 per cent. Asia ex-Japan remained ahead of the underlying markets year-to-date, with gains of 8.65 per cent, in comparison the MSCI Asia Pacific ex-Japan Index, which is up 3.18 per cent.

European hedge funds were up 1.67 per cent — the underlying markets were supported by positive macroeconomic data, industrial production strengthened and economic confidence indices rose to multi-year highs.

Japanese hedge funds also posted healthy returns, gaining 0.85 per cent and outperforming the the Nikkei 225 which was down 0.88 per cent during the month. The funds were also ahead of their counterparts in the year-to-date returns measure, with gains of 22.68 per cent. North American hedge funds were up 1.36 per cent, as most managers traded with confidence throughout the month.

Australian and UK-listed fund manager Henderson Global Investors has acquired Australian and London-based alternative investment manager H3 Global Advisors.

Henderson has acquired 100 per cent of the equity of H3 Global Advisors though the exact terms were not disclosed.

H3 specialises in active and enhanced commodities strategies and, managing approximately USD342 million on behalf of institutional and retail clients. The group was founded in 1996, and is run by Andrew and Mathew Kaleel.

"We are thrilled to have the H3 team join Henderson. The investment strategies managed by the team are contemporary and world class, and are complementary to our business globally," Henderson Australia's managing director Rob Adams said. "The strategies managed by H3 offer strong uncorrelated returns and can be an ideal hedge to more traditional asset sectors. We not only see strong demand for such return dynamics here in Australia, but we believe they will have global appeal. With Andrew, Mathew and the team we see a very strong partnership developing over the long term."

Kaleel added: "Following a successful partnership with Ascalon Capital Managers, the opportunity to work within a global business will provide us with the prospect to realise our long term objectives. Our boutique structure has served us well, however we are looking forward to being able to focus all of our time on investing and providing solutions for our clients. We are very confident that working with Henderson, we can do just that."

Westpac-owned Ascalon Capital Partners had a minority stake in H3 since July 2007, when funds under management stood at around USD50 million. Ascalon chief executive Chuak Chan said selling down its 45 per cent stake represented a good outcome for all parties.

"Ascalon is committed to working with its partners at every stage, helping fulfil their ambitions which can be assisted by leveraging the broad resources available within BT Financial Group and the Westpac Group or through exploring strategic options with external parties," he said.

The sale of H3 will result in the transition of the Responsible Entity ownership of the H3 Commodities Fund and the H3 Global Strategies Fund to HGI over the next six months.

Henderson manages USD123 billion (as at 30 September 2013) of assets on behalf of clients in the UK, Europe, Asia-Pacific and North America and employs approximately 1,000 staff members worldwide.

A note from Australia's Lexology reported on the Australian Securities and Investments Commission (ASIC) long-awaited changes to the definition of a 'hedge fund' (and 'fund of hedge funds') for the purposes of determining the application of the shorter Product Disclosure Statement (PDS) regime, and the application of enhanced PDS disclosure under ASIC Regulatory Guide RG240. The firm writes that the original 'hedge fund' definition was unclear and too broad which had the unintended consequence of capturing many types of funds that should not have be treated as hedge funds.

Alex Wise, Head of Fund Services at Select Asset Management comments: "Initially the definition was wide enough to catch many equities managers who consider themselves active or long only, the new draft has gone a long way to address some of these issues".

Lexology comments that the troubled history of this definition is reflected in the number of delays in its finalisation. "The shorter PDS regime applying to simple managed investment products commenced on 22 June 2012. At the last minute, ASIC issued interim relief to exclude 'hedge funds' from the application of the shorter PDS regime and to allow those 'hedge funds' that had prepared shorter PDSs until 22 June 2013 to transition back to a long form PDS."

Wise says:  "For many years disclosures of hedge fund strategies to retail investors have fallen significantly below what is disclosed offshore.  The additional disclosure is good news for retail investors who want to allocate to hedge funds.  The disclosures encompass many standard disclosures that offshore funds include, including some very simple things like "who is the administrator".

The transition date had to be extended to 1 February 2014 as it became clear that the original definition of 'hedge fund' was too broad and unworkable. ASIC has since consulted significantly and widely with industry to refine the definition.  It is intended that that the re-worked definition of 'hedge fund' will allow the more accurate targeting of the types of funds which pose more complex risks for investors. As ASIC Commissioner Greg Tanzer stated, "Our changes will benefit the industry by relieving some lower-risk funds from the more extensive disclosure obligations imposed on a hedge fund."

"ASIC have done a pretty good job, there's still some strange guidance such as; if you mention the word "hedge fund" anywhere in any marketing materials you are automatically a hedge fund! But on the whole the disclosure will be welcomed by retail investors" Wise says.

Aussie law firm Hall and Wilcox has published a table listing the principal differences between the old and new definition.

Wise concludes: "There is still a strong market for retail hedge funds in Australia due to sophistication at certain advisors and planners.  The key factor for offshore managers wishing to set up in Australia will be working with experienced partners in retail alternatives".

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