Pfaeffikon-based LGT Capital Partners, which manages more than USD22bn in hedge fund and private equity assets, has been investing in hedge funds since 1996. The firm offers institutions various channels to gain exposure to investment strategies, most commonly through its Crown programmes or, depending on the size of institution, via bespoke mandates.
Pius Fritschi (pictured), head of hedge fund business development at LGT Capital Partners, says that while there were strong private equity inflows in 2011, with investors particularly favouring LGT Capital Partners’ expertise in secondaries, there was also a lot of interest in systematic (CTA) hedge fund strategies.
“Pension funds are evaluating their hedge fund investment strategies and realising that investing in broadly diversified multistrategy funds is not serving them in the best way,” he says. “For the first time, we see clients looking at hedge funds not as an asset class but as distinct investment strategies and as components of their overall asset allocation.”
Fritschi sees a move among investors toward what he calls “equity substitution and equity diversification”. Equity substitution means reducing equity risk through partial rotation into equity long/short strategies, something that is happening more and more in the Anglo-Saxon world and also makes sense to Swiss institutions.
Equity diversification means investing into hedge fund strategies such as CTA and macro that display low correlation to equity and bonds, and therefore help to improve the risk/return profile of the overall portfolio.
“Our core competency in hedge funds is trading expertise,” Fritschi says. “As clients start to break up their multistrategy allocations into separate pieces, we’ve been successful in winning CTA/macro mandates as a diversifier.”
Post-2008, investors favour liquid hedge fund strategies. “They still worry about liquidity, transparency and control,” he says. “That’s why they favour the managed account model. However, clients should pay attention to the quality and robustness of such platforms as many providers jumped on that trend and may lack the necessary experience.
“As a principal investor, LGT Capital Partners has invested in its proprietary managed account platform since 2000. Today, the platform holds 30 leading managers. The platform is an important instrument that allows in-depth risk management and active portfolio management. We select managers and then try to negotiate managed accounts – we’re not simply choosing those who offer managed accounts and adding them to the platform.”
Fritschi says that since 2008, Swiss investors have favoured illiquid alternative strategies such as private equity and real assets, while demand for more liquid strategies through hedge funds has been lower.
“Interest has only returned partially so far and is more or less confined to institutions,” he says. “Private banking money has largely disappeared. The game has changed. Managers have to be institutional in their set-up, and it takes longer to gain their trust, maybe 12 to 18 months.
“We’ve been successful in the institutional segment because of our ownership structure. We’re privately owned and have a significant part of the firm’s money invested in our funds. This alignment of interests plays a major role.”
Fritschi believes the impact of new regulation on Switzerland’s fund industry will largely depend upon its ultimate form. “There are issues about what you can do as an investment advisor or manager, what functions you can delegate,” he says. “I trust that the right decisions will be made, as has usually happened in the past. It will likely remain the most favourable investment hub in continental Europe, but there is some regulatory risk.”