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All in the GAIM: Major Themes and Words of Wisdom

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CANNES, France (–As New GAIM 2006 draws to a close, what are the main themes that have emerged from the conference, and the most pertinent comments? Here are just a few?? 1/2

“Institutional investors care about process–they want to look under the hood.”

“Pension funds will continue to rebalance their portfolios in favor of alternative asset classes. However, pension plans have a compliance mindset even when they invest in hedge funds: They will only invest in funds that are registered.”

Still, many pension plans many want to see substantial investment by senior management within the investment product, since they feel this mitigates their own risks substantially.

Pension funds will not generally subscribe to the idea of long lockups, since they make rebalancing difficult and hamper liquidity needs. They also like to know how managers are invested at any particular point in time, especially if these are placing substantial bets. Moreover, they prefer to avoid excessive leverage.

“People should be looking at non-correlated asset classes to take some risk off the table or to enhance returns. If everyone is just chasing returns this could become a problem.”

There is still some terminology-defining that needs to be done when it comes to alpha, as with opportunities for positive alpha, which are not the same across all asset classes.

“Alpha cannot be replicated; otherwise, it is not alpha!”

“New alpha continues to be created in the hedge fund industry. There is still a lot of alpha to be discovered.”

“Much of hedge fund returns seem to be beta in a different form. For example, credit risk in emerging markets could be considered as beta.”

More sophisticated investors who are looking to emerging markets want more than just equities-based long-only or long bias strategies, and they are no longer willing to pay 2% management and 20% performance fees for these strategies when they can get the same exposure via a much cheaper ETF, or replicate the strategy themselves at a much lower cost.

The same goes for investors looking for commodities exposure.

It is possible for hedge fund managers to develop open, fruitful and mutually advantageous relationships with members of the press.

On the technology side, front- and back-office and end-to-end products are coming ever closer to meeting industry needs, but there is still room for improvement, and there’s a lot of competition out there.

A growing number of jurisdictions are looking to put on a hedge fund-friendly face. They are looking to make registration less complex while ensuring satisfactory oversight, and seeking to develop infrastructure by facilitating the establishment of service providers such as legal firms, custodians and accounting firms.

“Hedge funds ought to outsource tax, internal control and other compliance functions and invest more heavily in their core competencies if they want to maintain a competitive advantage.”

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Contact Bob Keane with questions or comments at [email protected].


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