And now for something completely different to start with. Hedge Clippings on a Monday.
The past couple of weeks have seen two "exit" news items out of the USA which have caught the attention of the absolute return sector. Firstly CalPERS, (California Public Employees' Retirement System) a significant and longstanding hedge fund investor, decided to exit their entire $4 billion exposure to the sector, followed last week by the news that investment manager Bill Gross, frequently cited as one of the industry's gurus and a founder and 40 year veteran of PIMCO, with a total of $2 trillion in FUM had quit to join the much smaller Janus Capital Group.
As this article from Forbes explains, while CalPERS' $4 billion seems a significant chunk of capital, it represented only a small portion of the $300 billion they manage in total. If one used the Australian Future Fund's hedge fund exposure of 16% as an example, CalPERS would have to increase their allocations by a massive $44 billion to match it.
CalPERS cited fees, performance and complexity as being amongst the reasons for their exit from hedge funds, and we have no doubt all are a significant factor. But with only just over 1% of their assets allocated to any one sector, it made it difficult (and expensive) to make a significant difference to their overall performance, which incidentally hadn't been too good.
The problem comes down to the trade-off between size and performance. It has long been understood that while the majority of institutional investors' capital flows into the largest 10% of funds, it is equally accepted that this is not where the best returns are to be found.
Take Bill Gross' fund at PIMCO for example. Over the past 15 years he provided returns in the top 12% of his peers, but over the past 12 months he has lagged to be in the bottom 20%. At his new home, Janus Capital Group, he will reportedly have just $13 million in FUM, and be in a significantly better position to outperform once again.
Anecdotal evidence suggests that there were other issues in his exit from Pimco, including differences of opinion over management. While his new fund won't have the luxury of the management fees he was earning, he will have the flexibility and freedom to return to being a nimble investor, one of the key drivers of small to medium funds' out performance of their larger competitors.
It seems size isn't just important, it just matters.
Specific results received this week include the following PERFORMANCEUPDATES:
KIS Asia Long Short Fund returned -0.1% during August and 9.57% over the prior twelve months with a low volatility of 2.65%.
Results for August show the Laminar Credit Opportunities Fund returned 0.53% for a 12 month return of 9.64% (RBA Cash Rate average 2.50%) with a volatility of 0.59%.
The Auscap Long Short Australian Equities Fund returned 5.24% during August, a strong out-performance of the equity market return of 0.62%, with a 12 month performance of 44.87% and a volatility of 6.55%.
Pengana Absolute Return Asia Pacific Fund returned 0.60% in August and 7.57% for the year with a volatility of 2.85% and a Sharpe ratio of 1.72.
During August, the Totus Alpha Fund delivered 2.02% bringing the 12 month performance to 37.96% with a volatility of 15.63%.
CPD points are available for all FUND REVIEWS released this week including:
Monash Absolute Investment Fund; Microequities Deep Value Microcap Fund; Optimal Australia Absolute Trust; Alpha Beta Asian Fund
15-17 October Grace Hotel, Sydney - Investment Performance Measurement, Attribution & Risk Management Forum will have leading experts sharing up-to-date, cutting edge ideas and insight on frontiers of recent developments in performance measurement.
21-22 Octoberin Sydney Post-Retirement Australia 2014 conference. Comprehensive two day forum for high profile cross industry participants to provide updates, insights and ongoing discussion into the key issues central to achieving optimal financial outcomes.
Friday 24 Octoberin Sydney Financial and Media Markets Charity Regatta Day out of Middle Harbour Yacht Club. Promises to be a fantastic day.
5-6 November, Grace Hotel, Sydney. Alternative Investments Conference - Investigating the rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.
This week's Now For Something Completely Different, this guy should buy a lottery ticket, he wasn't even wearing a helmet.
Best wishes for a happy and healthy week ahead,
Chris
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