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Year of solid performance needed to alter sentiment

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Interview with Alexandre Col – Even though total AuM in the hedge fund industry has reached USD2.25trillion, the source of new assets being allocated is particularly concentrated. Most new inflows stem from the US and Asia, where institutional investors are slowly ramping up their exposure to alternatives.

But as Alexandre Col (pictured), Head of Asset Management at Banque Privée Edmond de Rothschild SA (BPER) notes, the same cannot be said of Europe, where sentiment remains cautious:

“I don’t see any new significant interest at the moment. The amount of money allocated by European clients is not going to increase substantially this year in my view.”

The Edmond de Rothschild Group has been in the hedge fund business since 1969 and has an enviable track record. The fact that it has funds in different strategies with 10-, 20-year track records provides its clients with substantial comfort. As far as Col is concerned, institutional investors across Europe recognise the diversification benefits of investing in funds of hedge funds, and will eventually start to re-allocate “but one thing that the industry needs, above all else, is performance”.

“By year-end, on the one hand if European institutions see that they are not making money with their bond allocations they will start to look more closely at low volatility, multi-strategy options as a way to diversify. On the other hand, we could see some long/short equity managers with concentrated and aggressive portfolios achieving strong performances within a market recovery continuation and then making front-page headlines again. This might reignite investors’ interest and help increase European inflows,” says Col.

Since 2008, returns have, overall, been inconsistent.

“We need a year of solid performance. 2008 was a bad year, understandably. 2009 and 2010 were, for us, very good years (returning 16 per cent and 10 per cent respectively), but not so much for the industry. After the collapse of Lehman and the Madoff incident, nobody cared about performance. Investors were mostly obsessed with transparency, gates, liquidity, fraud, managed accounts and UCITS. 2011 and 2012 delivered roughly zero per cent returns (down 6 per cent in 2011 then up 6 per cent last year). That’s in the mind of investors. We need a year of solid performance to give them renewed hope and I think it could happen in 2013,” suggests Col.

Certain stocks are posting very strong gains (Nasdaq-listed Micron Technology is up 57 per cent for Q1) and that could result in investors starting to allocate more money to diversified equity strategies. Certainly, Col favours managers in the equities space, in particular those running concentrated event-driven portfolios.

“Managers who really understand the details of what’s going on in specific companies and understand why they are a success, these are the types of managers I like right now. They have the ability to build positions in stocks and identify potential turning points i.e. when the market changes its mind, and play hard their convictions.”

Although no new event-driven managers have been added recently to BPER’s Prifund Alpha umbrella (which currently consists of 8 alternative sub-funds), Col says he still prefers to focus purely on those with a well-established name and track record.

“That was a decision we took in 2009. In retrospect it was exactly the right thing to do and that remains the case for the time being.”

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