On the surface, average hedge fund performance in 2014 has been underwhelming but when one has a clear window on performance, as Lyxor Asset Management does with its commingled managed account platform, the picture becomes more nuanced.
“There have been two major events that have negatively impacted hedge fund performance. Firstly, the slide in equity markets earlier in the year, which affected long/short equity and to a lesser extent equity market neutral strategies. Secondly, the merger arbitrage space was impacted in October as a result of some large M&A deals not going through. Long/short equity and event-driven strategies were the two strategies that investors were most overweight this year,” confirms Daniele Spada (pictured), who was appointed the head of Lyxor MAP in May this year.
Indeed, the average long/short equity hedge fund is only up +2.20 per cent YTD according to Hedge Fund Research, whilst in event-driven that figure is a modest +1.02 per cent.
However, looking at the average performance is not always that helpful.
“There are many managers, including those on our platform, that have performed very well this year. Some of our CTA managers and global macro managers have delivered strong performance. Overall, the average hedge fund performance is not a good indication of the opportunity set for investors, whether they are investing in offshore funds or managed accounts,” says Spada, noting that market neutral and some long-bias funds have also done reasonably well.
One interesting trend that Spada and his team are seeing is increased interest among institutional clients for UCITS funds that are usually more designed for distributors. Lyxor currently offers three funds with assets already exceeding USD1bn.
“We’ve been very successful with one fund in particular – the Lyxor/Tiedemann Arbitrage Strategy Fund, a merger arbitrage strategy run by TIG Advisors. Since it launched in February 2013, the strategy has grown to approximately USD700m in AuM,” confirms Spada, adding that Lyxor is preparing to launch its next UCITS fund, hopefully before year-end.
This is an interesting development because it shows that institutions are using the managed account structure not just to remove commingled risk from offshore hedge fund investing but to build onshore portfolios in a more regulated framework.
“We want to broaden the UCITS offering but in the spirit of Lyxor MAP, we are very selective in the managers we work with. We are working closely with our analysts and Lyxor’s distribution partners to understand investor demand and what preferences they have in terms of strategies in UCITS for 2015.
“We are building a good overview for 2015 and have identified some names that we wish to add to the platform,” says Spada.
That the AIFM Directive is now in play further adds to this trend. Cognisant of this, Lyxor began the task of relocating its MAP from Jersey to Luxembourg this year; a huge task that has involved initially moving Lyxor’s FoHF products.
“We have started to prepare the migration of a first batch of hedge funds on the MAP, which should be completed in the next few months. It’s definitely something that we need to do to continue freely marketing funds on our platform across Europe.
“Our investors know the platform very well, so it’s not something that has stymied the development of the platform. It’s an ongoing exercise, which we will continue to focus on alongside developing the UCITS platform,” concludes Spada.
