By Niki Natarajan
As the global Occupy
movement continues to make its mark on the capitalist world,
hedge fund affluenza – an unsustainable addiction to
economic growth – is set to become an epidemic in
2012. Leon Cooperman’s UCITS debut can only signal
one thing: the future of hedge fund asset raising lies
increasingly in the noisy and over-crowded, fee-laden retail
In the funds of hedge funds world, New York-based Optima
Fund Management, whose high-net-worth joint venture with Mellon
has produced the Mellon Optima L/S Strategy Fund for the US
registered investment fund market, is all set to pursue the
retail investor in the European markets.
And like the now mass-marketed luxury jeweller Tiffany, one
of the most exclusive FoHF brands looks ready to go retail too.
The entrance of Blackstone Alternative Asset Management to the
1940 Act registered investment company market is further
evidence that between RICS and UCITS this contagion is going
global (see story, page 26).
As an in-depth look at the registered FoHF market shows,
established hedge fund management companies such as Permal,
Morgan Creek, BlackRock and Gottex are all preparing to unveil
their new products next year. So why is this happening? And why
The first reason is that with the lacklustre performance in
the hedge fund industry, performance fees are becoming as rare
as a hen’s tooth, thus the quest for assets
– and the stable asset management fees – is
taking hold in hedge funds now.
Second, much high-net-worth wealth has been wiped out, so
personal money management is becoming more and more important.
This is even resulting in some hedge funds entering the
wealth-management space in a bid to become multi-dimensional
asset managers, and of course pursue those lucrative fees.
The convergence in traditional and alternative investing is
being assisted by the advent of the UCITS III wrapper in Europe
and the RIC structure in the US. Once again, the asset
management dynamic of manufacturing and distribution is back in
play as hedge funds and funds of funds try to navigate the
minefield that is retail distribution.
There are a number of ways to play this game. Permal is
perfectly placed with its parent Legg Mason already a brand in
the mutual fund world. Indeed, according to its N2 filings, it
has registered two products, one with just Permal in the title
and the other with also Legg Mason. Once these funds are up and
running, it will be interesting to see how the underlying
manager allocations differ – if at all, given they
have the same adviser.
The other way to tackle the mutual fund hedge fund meld is
to hire blue-chip FoHF sub-advisers, as Alternative Investment
Strategies Group has done with its new ASGI Corbin
Multi-Strategy Fund and ASGI Aurora Opportunities Fund. Should
Aurora Investment Management really take to the retail world,
it already has a foothold in Europe through its parent,
Once again, investors will be faced with noise. Should they
look for the best performers or buy the fund with the slickest
marketing campaign? Interestingly in the UK, Standard Life, one
of the largest retail players with billions in its Global
Absolute Return Strategies fund, recently decided to shut its
dedicated funds of hedge funds business, Aida Capital–
perhaps signalling that the retail investor will be buying
brands it knows over seemingly esoteric concepts that continue
to gain bad press.
The real decision an investor has to make with hedge funds
is whether or not they want the Real McCoy. And for what
it’s worth, replicators are not hedge funds.
Frontier does, however, believe that a cocktail of hedge funds
and replicators is a much more honest mix of exotic beta given
the lower fees that it charges (see page 22).
It looks like brand marketing is heading to hedge funds in
2012. Let’s just hope that cross-border messages
do not get lost in translation and US managers heading to
Europe do not make the mistake that one major US investment
bank made in the 1990s when it brought its no-load mutual funds
to the UK: investors had no idea what a mutual fund was and
even less of a clue what 'no-load’ meant.