insto - Australian financial markets

The latest performance update of the alternative indexes from the EDHEC-Risk Institute’s asset management analysts shows that hedge funds continue to do well, as the world economy picks up.

Last month, the stock market was back on the rise with a comfortable gain (+6.00 per cent). This was “in a context of decreasing implied volatility (24.51 per cent), which is now at its lowest level since September 2008,” noted EDHEC’s report for November. Since its low point in February 2009, the S&P 500 index has now recovered half its losses from its high of September 2007.

Superannuation funds need to pay more attention to their tax risks, says PricewaterhouseCoopers partner Marco Feltrin. Addressing a Centre for Investor Education thought leadership seminar on tax and superannuation, he said that funds should include tax risks in their risk management framework: “Those that fail to do so will fail to capture any upside and will put their funds and members at risk of paying more tax and come under greater scrutiny from the tax office.

Ninety four per cent of foreign fund managers surveyed recently by Australian law firm Henry Davis York see growth opportunities in the Australian funds management market but only 59 per cent would seriously consider Australia as a base for their Asia-Pacific funds management business.

HDY funds management partners, Liz Gray and Nikki Bentley conducted a survey of foreign fund managers during a series of conferences called Opportunity Australia, supported by the Australian Trade Commission (Austrade), which were held in London, New York and San Francisco during October 2009.

Following a review of the assets of the Pacific First Mortgage Fund in conjunction with auditors KPMG, the gross assets have been written down by $449 million for the 12 months to 30 June 2009. Gross assets in the Fund now stand at $521m. This write down represents an additional impairment of $109m from the $630m written down value as at 31 December 2009.

According to the French EDHEC Business School’s researchers into alternative investments, hedge funds in particular, the following relative performances from various strategies were observed:

In October, after a remarkable period of substantial gains, the stock market finally registered its first loss (-1.86 per cent) since February 2009. With implied volatility back on the rise in a significant way (30.69 per cent), the S&P 500 index signalled the end of a spectacular recovery that generated an unprecedented +45.76 per cent return over the past seven months.

One of the oldest arguments in funds management was re-ignited earlier this year when Standard and Poor's released data showing passive index-huggers had clearly out-performed active managers.

The roiling credit and equities markets have been a source of anguish for many super fund members, while the best of the hedge funds have seen opportunity amongst the chaos for quick profits. So how do investors rate such different investment styles and performances?

Although global stock markets slipped in the second half of October as mixed macro readings pointed to the fragility of the economic recovery, hedge funds overall advanced, with all hedge fund strategies except managed futures (-1.02 per cent) and long bias (-0.38 per cent) recording positive returns.

Stock markets tumbled across the board, declining 1.76 per cent for October as measured by the MSCI World TR Index. US stocks declined for the first time in eight months, finishing the month at minus 1.86 per cent according to the S&P 500 TR Index reading, with growth and value stocks both dropping. The other two major US equity indices showed flat to negative returns, with the Dow Jones Industrials and NASDAQ indices ending the month at zero and minus 3.64 per cent, respectively.

The economic downturn has forced a growing number of fund managers to rethink their approach to both asset allocation and controlling risk, writes Mark Story.

Below are some of the highlights from the monthly hedge fund performance report by Aureliano Gentilini, global head of hedge fund research for Lipper, a Thomson Reuters company.

• After easing in August, hedge funds consolidated their uptrend in September as the Credit Suisse/Tremont Broad Hedge Fund Index returned a solid 3.04 per cent—for a seventh consecutive month of positive returns. The Broad Hedge Fund index returned a positive 7.27 per cent in third quarter for a year-to-date performance of 14.97 per cent. 

Endowment plans have suffered the effects of post-crisis liquidity returns and limited sources of income. A recent survey undertaken by Preqin, an information provider for the alternative assets industry, assessed endowment funds’ appetite for new private equity investments following the global economic downturn.