Thursday, 29 September 2016
Last updated 9 min ago
May 15 2012 | 11:46am ET
Hedge funds returned 0.51% in April, according to the GlobeOp Hedge Fund Performance Index—and if you’re not familiar with that benchmark, it could be because today is the first time it’s been published.
The index—which puts hedge funds up 3.66% year-to-date—is the latest offering from the hedge fund administrator which counts about 10% of single-manager hedge funds (with about $187 billion in combined assets under management) as it clients. For a year now, GlobeOp has been publishing capital movement indices, tracking hedge fund inflows and outflows:
“These capital movement indices were unique and were very well received and widely quoted,” GlobeOp CEO Hans Hufschmid told FINalternatives. “I think the European Central Bank is quoting them in their quarterly reports to their member banks. The last feature really that was missing there was the performance, the returns, because clearly, if by some quirk of statistics our clients would perform much better or much worse than everyone else, that would have implications on capital flows. By publishing the performance index, we completed the picture—you now have everything, you have flows in and out, you have redemptions and you have returns. And you have a very good view into the market overall.”
Hufschmid says GlobeOp’s performance index is distinct from its competitors in a number of ways. First, he says, there is no selection bias—all the firm’s clients participate; there is no opting out. Second, the data are asset-weighted, so the performance of smaller hedge funds is not overstated. Third, there is no survivorship bias, as can be the case where indices are based on funds self-reporting.
“What happens a lot is, when funds do really well they start reporting to these indices and they do that reporting for a few months, and then once they do poorly or they’re about to go out of business, they stop reporting because there is no more reason for them to report and so you don’t capture some of these aspects. Some academics have done research on this in the past and they’ve shown that this whole survivorship and selection bias can actually be quite substantial in terms of returns. We don’t have that problem,” says Hufschmid.
Hufschmid added the GlobeOp index represents a good mix of funds, including multi-strategy, distressed debt, mortgage funds, emerging market funds and more.
“Because we are very good at doing complicated stuff, we tend to get the more complex funds,” he says, “We have a very well-distributed portfolio where no single strategy is really dominating and I think that’s important. The way you see that best is when you look at correlation—a lot of hedge fund indices, against the Standard & Poor's 500 and against the MSCI, they have correlations in the 60s, 70s, even the 90s. Clearly, when you invest in hedge funds, you would like to design a portfolio that has very little correlation to the equity market because you’re trying to diversify your risk. Plus, if you have a portfolio that has a very high correlation to the equity market you might as well just invest in an equity index, because it’s much cheaper . So the correlation of our portfolio to the S&P and MSCI is about 25% to 30% going back to our inception, which is January 2006.”
GlobeOp will be published on the 10th U.K. business day of the month which, for this, its inaugural month, is the 15th.
Asked about the sale of GlobeOp to hedge fund administrator SS&C, Hufschmid was confident the buyer would achieve the agreement of 70% of shareholders it needed—confidence that was rewarded yesterday, when the acceptance level reached 76.8% of shareholders.
Windsor, Conn.-based SS&C offered £572 million (US$818 million) for GlobeOp, topping an earlier bid from U.S. buyout giant TPG Capital.
Hufschmid says the sale will give SS&C access to GlobeOp’s technologies and its workforce, 75% of which is in India. In return, GlobeOp will get access to SS&C’s broader client base and an opportunity to cross-sell its services to insurance companies and corporate treasuries, two markets it has had little exposure to in the past. Hufschmid says SS&C’s hedge fund clients may also, eventually, be included in GlobeOp’s indices.
With the future of his company all but settled, Hufschmid says his own future remains up in the air.
“I certainly have an offer to go on with the business,” he said, “but we’ll both have to see how that all plays out. That’s still a decision that is under consideration on my part.”