This week I read an interview with Timothy Spangler, the US author of a book called "One Step Ahead: Private Equity and Hedge Funds After the Global Financial Crisis," in which he provided some interesting insights into the evolution of the managed funds sector, albeit with a very US centric slant and a focus on hedge funds.
To set the record straight I haven't yet read the book, (Amazon aren't that quick) but the interview covered a range of issues including the negative perception of hedge funds in the media, and thus by the general public; the lifting of restrictions in the US on advertising hedge funds to retail investors; and the difference between the asset managers who see their challenge as building assets, and those who see it as the single minded pursuit of performance.
Elsewhere the article covered the perennial debate between Long Only Benchmark Aware Investing vs. Absolute Returns. Of greater interest however was his view that hedge funds act as an effective magnet for talent, and as such their attraction to certain individuals from the long only, asset gathering side of the industry.
Maybe this struck a chord because this week Sean Webster and I had the opportunity to interview Simon Shields and Shane Fitzgerald from Monash Investors, two highly qualified and successful professionals who after 20+ years in the industry, and each at the top of their tree, took the bold step in mid-2012 of launching their own fund.
What intrigued us was why would two highly paid, award-winning, senior fund managers with excellent track records working for major institutions such as UBS, BT and Colonial First State step outside their comfort zone, both emotionally, professionally, and financially, to launch a long short start-up, and try to raise capital without the infrastructure and support provided at the big end of town?
The first response was probably predictable: They wanted to control their own destiny and make their own decisions away from their previous environments. Underlying this presumably was that as they progressed up the corporate ladder their roles became less focused on investment management, and more focused on internal corporate management.
Secondly, and equally importantly, they believed that long only management was no longer at the cutting edge of the industry, and that absolute return strategies provided greater flexibility to adjust investment styles to suit changes in the underlying market. They saw the ability to invest with true conviction, including the ability to short if necessary, and without the limitations of being fully invested in the market at all times, as being a more rewarding approach.
From a performance perspective it is early days yet for their Monash Absolute Investment Fund. After 21 months their annualised return is in excess of 26% with volatility of 7.53% and Sharpe Ratio of 2.76. Until the last three months this has been in a buoyant equity market, so the real test is yet to come. However having returned 8.32% year-to-date compared with the market's 2.09%, early indications are that their absolute return focus is holding its own.
Shields and Fitzgerald are of course not alone, and the absolute return and hedge funds space is typified by individuals leaving the comfort zone of a large corporate investment manager to strike out on their own and make a difference. Some, such as Sir Michael Hintze at CQS, and Kerr Neilson at Platinum, have gone on to not only provide excellent long-term performance, but also build significant businesses and reputations to match. Others have preferred to remain under the radar and focus less on asset gathering (frequently as a result of their specific strategy) and more on performance.
To come back to Spangler's interview, and presumably in his book when I get to read it, is that the absolute return and hedge fund industry acts as a magnet for talent. Markets may change and strategies may evolve, but it is the talent within the industry that will drive its future and success.
Specific results received this week include the following PERFORMANCE and NEWS UPDATES:
Bennelong Kardinia's Absolute Return Fund recorded a reasonable return in a flat market delivering 0.87% with the annual return 9.67%.
The Optimal Australia Absolute Trust returned 0.04% in March with an annual return of 3.30% and standard deviation of 1.89%.
Morphic's Global Opportinuties Fund returned -2.63% for March, slightly above the benchmark ACWI Index (in $A), with annual returns at 27.63%.
The Allard Investment Fund had a sound month returning 0.1% during March (Index -1.9%) and 9.69% for the previous 12 months.
Updated FUND REVIEWS released this week included:
Morphic Global Opportunities Fund, whose philosophy is that only funds with flexible investment and hedging strategies will be able to deliver acceptable, steady, real, absolute returns over the investment cycle.
If you know of any upcoming hedge fund industry Events, or would like your Event listed in our calendar, please contact us.
And now for something completely different, just a week out from Easter. We're not quite sure how the Pope will react to this, or if the Church will now allow Priests to marry?
On that note, I hope you have a safe and happy weekend.
Best wishes,
Chris
CEO, AUSTRALIAN FUND MONITORS
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Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. To celebrate the 20th anniversary of their #CBDGolf Escape! charity golf event, Cerebral Palsy Alliance are holding an online raffle. The prize will be a Toyota Yaris YR Hatch 3 Door, plus many amazing prizes inside the car - A total prize value of $22,000...See more
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