Australian hedge funds have recovered from the outflows which occurred during the global financial crisis, according to industry stalwart Kim Ivey (pictured), now an adviser to hedge fund managers and family offices.
He says that some are having a particularly good year now thanks to the extra volatility from the nervousness over China and the ramifications of Brexit.
Ivey, a founder of the annual Hedge Funds Rock & The Australian Hedge Fund Awards charity night, which is in its 15th year and is due to be held at Sydney’s Ivy Ballroom on 15 September, says trend-following strategies such as CTAs and managed futures have seen increased investor interest in the past few months, especially since Brexit.
But longer term, since 2008, it is “anything with a yield component” which has proved popular as investors become concerned with growing negative yields in traditional fixed interest markets.
“There is great diversity in the alternatives space,” Ivey says, “and as managers position themselves in changing market environments, there tends to be some cyclicality among strategy returns.”
Perennial challenges for Australian hedge fund managers include a propensity for big local super funds to look offshore to larger hedge fund managers for their exposures and, consequently, where to get the best traction in terms of meeting their intended fund flows.
Ivey says that family offices and high net worth investors were early supporters of the local industry in the 1990s, followed, gradually, by super funds and other institutional investors.
Later in the 1990s, super funds began investing in funds of hedge funds. Since the GFC, many fiduciary investors subsequently developed their due diligence efforts and internal teams to build customised alternative investment programs, augmenting their FoHF exposures with single-strategy funds or multi-strategy funds.
“There’s been good progress from the investor side understanding alternative managers and their strategies in the past 10 years,” Ivey says, “ but given the growing appeal of alternative investments, managers are still digesting the differing requirements of sovereign wealth, superannuation, offshore pension, HNW, family office and retail client bases.”
Super funds, in particular since the global financial crisis, are demanding their hedge funds be of “institutional grade” with respect to their business management and infrastructure.
“It’s not just with back office operations,” Ivey says. “If managers desire fiduciary institutions as clients, it is incumbent upon them to build quality client and consultant reporting mechanisms, automated trade reconciliations and collateral management systems, with dedicated operation, compliance and client service teams. This all takes time and money.
“Investors are also interested in the sustainability of their alternative investment managers. Independent directors, board governance, strategic planning, and brand management….are all issues that managers should be prepared to discuss when in the due diligence phase with institutional investors.”
Alternative investment managers are becoming popular in the non-institutional market. Mathew Jeremy, another of the HFR judges says: “The Australian hedge fund industry has demonstrated flexibility and competiveness be responding to the demand for platform- friendly products from investors in the SMSF, adviser driven and pure retail space.”
Outside of the local investor base, Ivey says: “Many successful Australian managers have also been able to attract Asian, European and North American investors which make up the nearly USD3 trillion invested in alternative investment strategies.”
