Convergence Trend Shapes Fund Administration

Chidem Kurdas

A growing number of mutual funds offer hedge fund-type strategies.  This convergence trend

Road Less Traveled Financial Stocks

After the crisis of 2008, many financial companies were undervalued. You could make good money holding a bunch of well-known names. It is tougher now after a prolonged up market. Although you still see big companies like Goldman Sachs and asset manager Legg Mason in portfolios, there is a move to look elsewhere for the next financial trade.

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Resilience Despite Japan, Mideast Crises

Chidem Kurdas

There were dramatic reversals in hedge fund asset growth over the past five years in response to certain incidents, as documented in the new capital movement index series from fund administrator GlobeOp.  Have recent events – political turmoil in the Middle East, nuclear threat in Japan after the earthquake and tsunami – affected hedge funds?

Investors Examine Each Other

Chidem Kurdas

Fund clients are showing greater concern about fellow clients. This is a consequence  of the redemption frenzy of 2008-2009, when some investors withdrew from funds in a bad market because they had an urgent need for money, often to meet margin calls. This forced funds to sell at losses that could have been avoided by waiting. Other investors were harmed. Many managers suspended redemptions.

“The investor base is very important to us,” says Lorrie Landis managing director of credit investments at Tulane University. “We want funds to be very stable, don’t want to be hurt by whatever is going on with another investor.”

Fund managers also are paying more attention to the kinds of clients they get.  Suzanne Murphy, head of strategic development at credit fund manager Claren Road Asset Management, said Claren Road’s investors used to be almost all a single type—95% were funds of funds.

Administrators Explain What They Do

Chidem Kurdas

Transparency is a term that’s been used a lot for fund managers. But increasingly you hear it applied to fund administrators as well.

Administrators lacked process transparency, says Mike Greenstein, a PricewaterhouseCoopers partner who leads the alternative investments practice. If people understand what administrators do, they will have more trust, so there is a move toward process transparency for administrators, he said, speaking at a conference.

What does process transparency involve? Vernon Barback, president and chief operating officer at GlobeOp Financial Services, an administrator listed on the London Stock Exchange, suggested basic questions from a fund’s investors to its administrator. 

Crossovers: JP Morgan Fund, SEI Guide

Chidem Kurdas

In just the past few days there have been a number of announcements about the intersection of hedge funds with mutual funds. Among these is JP Morgan’s launch of Highbridge Dynamic Commodities Strategy mutual fund, which draws on an investment team that is part of Highbridge Capital, the bank’s giant hedge fund.

Side Pockets Persist

Chidem Kurdas

Even as markets and hedge fund returns recovered from the crisis of 2008, some managers continued to keep hard-to-sell assets in separate portfolios that have restricted redemption. The practice was initially a response to extraordinary circumstances but persisted largely because managers believe they can salvage losing investments if given more time.

Side pockets limit withdrawals by investors while the agreed-upon redemption conditions still apply to the assets in the fund proper. Thus some of Perry Capital’s investments were moved to side pockets after losses in 2008. The losses came in part from Perry’s trades in Porsche’s attempted takeover of Volkswagen.