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Segregated FoHF mandates gain institutional traction

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Unigestion, a fund of hedge funds manager with USD12.6bn in assets under management and more than 230 institutional investors on its client book, first started investing in hedge funds back in 1986 and established its first institutional mandate in 1995.

Its long track record has helped Unigestion develop a series of fund of hedge funds products that investors can access through separate tailor-made mandates or commingled vehicles. All the firm’s hedge fund assets are managed on behalf of institutions, half in segregated portfolios.

According to managing director Jean-Francois Hirschel, increased correlation between asset classes is impacting Unigestion’s dialogue with its investors. “Our clients are getting more interested in hedge funds because they’re faced with two challenges,” he says.

“First, traditional equities have been volatile and investors haven’t gotten the returns they need to meet their liabilities. Secondly, interest rates on traditional bonds have reached historic lows. Hedge funds are viewed as a diversifier and a way to reduce volatility. The one size fits all strategy doesn’t work anymore. Each strategy should be adapted to a specific situation.”

Whereas before the crisis the majority of hedge fund investors were private clients, institutions are now the dominant players. Hirschel says this has meant having to highlight to institutions the role hedge funds can play in their portfolio.

“It’s about assimilating and showing the impact of an investment in hedge funds, and the clear benefits this brings,” he says. “Institutions want to get information and share experience on how the market has evolved enormously over the past five years.”

One problem for Swiss institutional investors, says Unigestion’s director of institutional clients Daniel Ritz, is that last year’s returns for pension funds were negative. Their average loss was 0.5 per cent, while their liabilities grew by 2.5 per cent.

“Some pension funds have sought to reduce expenses such as management fees, and there’s generally a negative sentiment toward hedge funds among Swiss institutions,” Ritz says. “We do see demand, however, for tactical trading strategies with low correlation to bonds and equities such as managed futures.”

This was especially true last year as institutions sought to reduce volatility and protect capital against big market drawdowns. “We built solutions with a higher exposure to the tactical trading space,” Hirschel says.

Unigestion also creates bespoke solutions for particular clients to meet the requirements of the Swiss Solvency Test. As well as the firm’s flagship multistrategy fund, which invests in between 25 and 30 underlying managers, Unigestion also offers pooled fund of hedge funds strategies, divided into three segments: tactical trading, equity hedge and arbitrage.

“We divide hedge funds into these three families as we believe they offer the least amount of correlation with each other,” Hirschel says. “We also have more specific themed strategies such as commodities and credit. In 2011, the majority of net inflows went to segregated multistrategy mandates.”

Unigestion took on several new segregated fund of funds mandates from Swiss institutions in 2011, and Hirschel believes they will be increasingly popular in the future. These institutions seek a dialogue with managers that will provide market views and information they can use for their investment decisions, Ritz argues.

However, Swiss investors’ interest in emerging managers is muted. “I don’t see too much interest in emerging managers,” Ritz says. “Preserving capital is the clear focus for most Swiss institutions.”

Please click here to download a copy of the Hedgeweek Special Report – Switzerland Hedge Fund Services 2012

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