By Lorcan Murphy - The hedge fund industry has been marked by fundamental changes in the attitudes and preferences of investors over the past three years. High new worth clients whose hedge fund investments experienced drawdowns in 2008 have become more discerning and cautious. Managers now must be able to explain clearly why the losses will not be repeated and about the measures they have employed to manage counterparty and investment risk.
To a considerable extent investors have understood that managing a portfolio’s liquidity risk means more than investing in liquid assets. They have also a greater understanding of the meaning of transparency and of where investment returns come from, and pay greater attention to the impact of the manager’s costs on net performance.
This new approach comes at a time when, despite the reported shift toward domination of hedge fund investment by institutions, many managers are targeting private wealth and family offices. They are attracted not only by the sheer size of this market but such investors’ speedier decision-making processes, and the fact that this new market has no damaging history of disappointing performance or redemption restrictions.
Entering the private client marketplace poses problems, however, for hedge fund managers whose asset-gathering experience has in the past been limited to dealings with a relatively small number of institutional investors. In response, the past couple of years have seen the emergence of managed account platforms offering clients liquidity, transparency and risk management, and the offering of hedge fund strategies through Ucits structures that offer investors the comfort of a higher level of regulation.
With more than 9 per cent of worldwide assets under management, a 27 per cent share of the global offshore private banking marketplace, two of the world’s largest wealth management firms in UBS and Credit Suisse, and an underlying customer base drawn not only from Europe but the Middle East, Latin America and Asia, Switzerland is central to any efforts to raise hedge fund investments from private clients.
As a licensed Swiss representative, Acolin Fund Services offers managers assistance in gaining approval for their funds in Switzerland and ongoing legal representation. It also brings an established distribution network encompassing 370 institutions of all kinds that account for some 85 per cent of the Swiss market measured by assets.
Acolin’s network, which includes not only global players but regional and cantonal banks, independent asset managers, insurance companies and platform providers, offers managers instant access to established distribution arrangements in Switzerland rather than having to create their own network from scratch, as well as contracts covering other major European markets such as Germany and Austria.
An important aspect of the administration of distribution is the handling of retrocession payments, ensuring that the manager does not get billed a second time for distribution by the institutions that clear payments to the fund from investors. Acolin also offers advice on distribution to enable managers to hone their marketing and sales strategy for the Swiss market.
Switzerland’s private banking industry is more important than ever as a source of new capital as hedge fund managers work to rebuild their asset base after the downturn of 2008-09. Taking advantage of an established distribution network rather than shouldering the burden of costs, resources and time required to create their own relationships is central to taking full advantage of the opportunities in the market.
Lorcan Murphy is managing partner of Acolin Fund Services and head of Acolin UK