Australian Hedge Fund Industry Gains from Chinese, Brexit Volatility

Aug 23 2016 | 12:16am ET

Australian hedge funds have recovered from the outflows that occurred during the global financial crisis, according to veteran industry advisor and Vertex Capital Management executive Kim Ivey.

Some funds are benefitting from the extra volatility on global markets that has accompanied developments in China and the ramifications of Britain’s late-June Brexit.

Ivey, who is a founder of the annual Hedge Funds Rock charity and industry awards night, also said trend-following strategies such as CTAs and managed futures have seen increased investor interest in the past few months, especially since Brexit. This observation mirrors tendencies seen in hedge funds from other parts of the world.

However, Ivey added, since 2008 “anything with a yield component” has proved popular as investors become concerned with growing negative yields in traditional fixed interest markets.

“There is great diversity in the alternatives space,” Ivey said in a statement released on Monday. “As managers position themselves in changing market environments, there tends to be some cyclicality among strategy returns.

Australian hedge fund managers have a number of challenges, Ivey added, including a propensity for big local super funds to look offshore to larger hedge fund managers for their exposures and, consequently, where to get the best traction in terms of meeting their intended fund flows.

Family offices and HNW investors were early supporters of the local hedge fund industry, Ivey said, followed gradually, by super funds and other institutional investors. By the late 1990s, super funds were investing in funds of hedge funds, and since the financial crisis, many fiduciary investors have developed their due diligence efforts and internal teams to build customized alternative investment programs, augmenting their FoHF exposures with single-strategy funds or multi-strategy funds.

“There’s been good progress from the investor side understanding alternative managers and their strategies in the past 10 years,” Ivey said in the statement, “ [However], given the growing appeal of alternative investments, managers are still digesting the differing requirements of sovereign wealth, superannuation, offshore pension, HNW, family office and retail client bases.”

Super funds are also demanding their hedge funds be of “institutional grade”. For Ivey, this means investors are interested in the governance and sustainability of the alternative investment managers with which they work. Independent directors, board governance, strategic planning, and brand management are all issues that managers should be prepared to discuss when in the due diligence phase with institutional investors.

Outside of the local investor base, “many successful Australian managers have also been able to attract Asian, European and North American investors which make up the nearly US$3 Trillion invested in alternative investment strategies”, Ivey said.

The 15th annual Hedge Fund Rock and Australian Hedge Fund Awards event will be held in Sydney on September 16. A portion of the proceeds will be donated to Red Kite charity, adding to about $4 million raised by the hedge fund industry since the first event in 2002.

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