Ex-Wall Street Bankers Bring Science to China’s Rocky Stock Market

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Ex-Wall Street bankers are betting science can exploit opportunities in China’s often rumor-driven stock market, with some predicting the quant-driven fund industry to grow by as much as 10-fold to 100 billion yuan within a few short years.

Former Goldman Sachs banker Shen Yi is confident his newly-launched 20 million yuan ($3.17 million) quant fund, which trades purely on complex mathematical calculations pre-programmed in computers, can beat the market.

“Models sum up history and predict the future,” said Mr. Shen, who holds a doctorate degree in physics from Oklahoma State University. “Markets change, but human nature doesn’t.”

Since 2010, when China rolled out index futures, margin trading and short selling, more than 30 quant funds, or those that use statistical models rather than fundamental analysis to make investment decisions, have been launched, many of them by former Wall Street bankers like Mr. Shen.

There are no official or industry data on the size of China’s quant fund industry, but Mr. Shen, based on his knowledge of how his rivals are doing, estimates the assets under management to be around 10 billion yuan. He believes the industry could grow 10-fold to 100 billion yuan in just three years.

These fund managers are betting that the quantitative approach, which follows a set of mathematical techniques to evaluate risk, pricing and timing of trade, can get traction in China as mutual funds struggle to make profits in a stock market which has fallen nearly 30 percent over the past 2 years.

“In a bull market, no one would listen to us. But now it’s different,” said Tang Weiye, who manages about 200 million yuan for quant-driven hedge fund Credence Oriental Partnership.

The fund has so far generated a return of more than 200 percent, helped largely by its short futures positions during the 2008 market slump, he said.

“After all the ups and downs in recent years, investors are saying we want some modest but steady returns and don’t want to suffer from market volatility,” said Mr. Tang, a Stanford-educated former IBM programmer.

But managing a quant fund in a tightly-regulated market, like China, is no easy task. Chinese investors are only allowed to sell stocks on the second day of purchase, preventing funds from conducting intraday trading and limiting their trading maneuvers.

Secondly, a stamp tax rate of 1 percent of transaction value is a significant hindrance for high-frequency trading, while the cost of stock borrowing for shorting purposes, according to Mr. Tang, is typically around 9 percent on an annualized basis, compared with less than 3 percent in the United States.

Another constraint is a shortage of hedging tools in China. Index futures and short selling were introduced just two years ago, but with many restrictions still placed on how they can be used by institutions.

“Running a quant fund in China is not easy,” said Kin-Leung Chan, managing director of Hong Kong-based China focused hedge fund Rega Technologies, which uses quant techniques to filter out investment ideas.

While fund managers hope China will introduce more policies that would benefit quant funds, regulators have so far taken a cautious stand after quantitative hedge funds were criticized for contributing to the market sell-offs during the 2010 “flash crash,” when the Dow Jones index fell nearly 1,000 points before bouncing back in minutes.

“It’s understandable that regulators are cautious towards things that they’re not familiar with,” Mr. Shen said.

But the development of quant hedge funds would actually help regulators’ efforts to curb excessive speculation and boost liquidity, he argued.

For example, when a certain stock is over-valued relative to its peers, certain quant models would generate and execute sell transactions to seize on the investment opportunity.

“It’s easy for investors to get emotional and prejudiced when trading, but computers don’t,” said Liu Zhen, former U.S.-based money manager at Brevan Howard and D.E. Shaw who now heads E Fund Management Co.’s quantitative investment department. “Exploiting those human weakness is how quants make money.”

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BulldogBillionaire

Hedge Funds Find Loophole to Trigger Greek Default

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Hedge Funds Find Loophole to Trigger Greek Default

Some hedge funds have found a legal loophole they believe will force Greece to repay some of its debt in full, three sources close to the matter said in a move that would intensify the standoff between the country and its debtors. Greece closed a bond swap offer to private creditors after clearing the minimum threshold of acceptance to push the biggest sovereign debt restructuring in history.

Government officials said more than 75 percent of eligible bonds had already been committed resulting in losses of some 74 percent on the value of the debt in a deal that will cut more than €100 billion from Greece’s crippling public debt. But because of a provision written into one particular bond, some hedge funds believe that Athens has already defaulted on that bond by asking bondholders to exchange their debt for new paper with a much lower value.

The funds are now trying to buy up enough of the bond—issued by state-owned Hellenic Railways and guaranteed by the government—to force Greece to repay them in full, to the tune of some €400 million ($530.92 million).

If Greece refuses to do so, this may trigger similar provisions on other Greek railway bonds, potentially landing Athens with a bill of about €3 billion, with investors demanding immediate repayment, the sources said.

However, it is unlikely the hedge funds could derail the overall debt swap, which will shave more than €100 billion off Greece’s debt pile, a crucial precondition for receiving more international aid and staying in the euro.

The exchange has already been accepted by more than 75 percent of investors, a senior official told ahead of deadline.

The hedge funds have been targeting some of Greece’s more investor-friendly foreign law bonds—like the railway bond—hoping to stop Athens from activating so-called Collective Action Clauses (CACs), used to impose losses on all holders. This could then allow them to squeeze a bigger payout, potentially through lengthy court challenges, while creditors that do sign up to the bond swap face losses of 74 percent on their investments.

Accelerating Payments

Athens has warned that it does not have the money to pay these so-called “holdouts,” but sources close to its negotiations are now concerned it may well have to pay out some smaller bonds in full to make the problem go away.

“Some of them (hedge funds) might manage to get paid in the end, on small amounts it’s still possible,” said one of the sources.

Some 15% of Greece’s €206 billion of bonds held by private sector investors are issued under foreign law.

The problematic transport bond—a €412.5 million issue maturing in 2013—has a clause that allows bondholders to argue that Greece is in default if it is trying to restructure or change the terms of its debt.

The creditors could already argue that Athens has defaulted, and if they buy up a quarter of that bond—or enough of it not to be forced into the debt swap—they can also then demand immediate repayment, a process known as acceleration.

Sources close to Greece’s negotiation fear the funds could already start the acceleration process by Friday [March 9, 2012], or next week, if they find they have a big enough majority.

Final meetings concerning the swap of foreign law bonds take place at the end of March 2012.

Although these clauses only concern this one bond, the action by hedge funds could trigger clauses contained in other Greek railway bonds. And because of the provisions in other bonds governed by English law, this could eventually affect more deals, potentially affecting up to €8 billion to €9 billion worth of debt, one of the sources said.

BullDog Billionaire

Investors falling out of love with hedge funds

 

Deep cracks are starting to show in the love affair between hedge funds and their investors, after another year of paltry returns on expensive investments leaves many feeling cheated and close to bailing out.

An asset class once feted for its ability to make money in all markets is back under the spotlight after the average fund lost 4.4 percent in the first 11 months of the year, data from Hedge Fund Research shows.

That tepid performance comes just three years after hedge funds lost an average 19 percent in 2008’s market chaos, and raises serious questions about the industry’s future growth, particularly in light of the huge fees the managers often earn.

“I’m disappointed at the level of returns,” said one large institutional investor who asked not to be named. “The hedge fund industry has once again been underwhelming people’s expectations.

“It’s an expensive asset class … They’re going to have to have another 2001 or 2003 in the next three-to-five years if they expect the industry to grow,” the investor said.

Hedge funds, which made money both in 2001’s tumbling markets and 2003’s rally, have been caught out this year by whipsawing markets and high volatility amid the euro zone’s prolonged and deepening debt crisis.

Equity funds — which often rely on fundamental stock analysis — have been particularly hurt, while macro funds, which bet on stocks, bonds, currencies and commodities, have also left some investors disappointed.

Star managers have suffered, notably John Paulson, whose main Advantage fund was down 47 percent to the end of November, while Crispin Odey’s European fund is down around 15 percent to end-October, despite big gains in the autumn rally.

“Most hedge funds have a cash benchmark so one really wants to ask — have they been better than cash after fees? My sense is that many have not,” said Patrick Rudden, head of blend strategies at AllianceBernstein.

A review of hedge fund performance compiled by HSBC shows huge variance of more than 80 percentage points across the industry during 2011.

While the Paulson Advantage Plus fund was seen the worst performer this year, the Renaissance Institutional equities fund had advanced 32 percent by December 9.

“Hedge fund performance figures this year should be seen in the context of exceptionally challenging circumstances for all market participants,” one industry source said.

Despite the humble returns, clients faced with volatile equity markets and meager returns on cash and government bonds markets aren’t pulling out wholesale from hedge funds because they do not know where to re-allocate to.

However, Man Group and Polar Capital have both recently reported outflows from their funds and data from BarclayHedge and TrimTabs Investment Research on Monday showed investors asked funds to return $9 billion in October, more than three times the amount they pulled in September.

“Obviously investors (across the industry) are not happy with performance … but many know why (funds have lost money) and they know you’re paid to manage risk,” Fabrice Cuchet, global head of alternative investments at Dexia Asset Management, told Reuters in a recent interview.

However, dissatisfaction is certainly growing.

Data from research group Preqin show the proportion of investors who say hedge fund returns have fallen short of their expectations has risen to 40 percent, compared with 28 percent last year and the 38 percent recorded in 2008’s market chaos.

“In 2008 people were calling the end of the hedge fund industry, but in retrospect people scratched their heads and said, ‘the equity market is down 40 percent and hedge funds are down 20 percent. Have they done a good job? Yes,'” the large institutional investor said.

“This (year) isn’t that. This isn’t a ‘down 40 percent’ year. It’s a totally different situation,” he said.

Guy Saintfiet, senior hedge fund researcher at pensions consultant Aon Hewitt, which has $3.8 trillion in assets under advice, said new and existing clients were still allocating to hedge funds but were far more picky about the funds they backed.

“But I think what you have seen is that the average hedge fund out there is probably not a good investment and that is the main lesson, not that the hedge funds our clients are investing in are not doing what they are supposed to be doing,” he said.

Nevertheless, one head of hedge funds at a U.S. bank said the overall industry performance has been “unimpressive” since 2007 and a broad shake-up is needed if managers want to hold onto jittery investors chastened by recent volatility.

“Not only is this a second down year in four, but the up years have been in line with the market. So you’ve had four years that have been in line or horrific,” the manager said, speaking anonymously to avoid souring business relationships.

In the new paradigm they should be aiming for capital protection. They should be trying to minimize down-capture and offer a decent amount of up-capture…I do have a genuine worry for the industry.

Thanks

BulldogBillionaire

20 new hedge fund firms to see success in 2012

20 for 2012

 

New launches are always big news, but in the last 12 months there have been more reasons than normal to get excited. The investment environment has been thawing, big-name protégés have been stepping up, and a certain Volcker Rule has sent waves of prop desk talent out  into the open. Make some noise then for the class of 2011 – the 20 new hedge fund firms from first-time founders deemed most likely to see success in 2012.

Edoma Partners
Founded October 2010
Founder Pierre-Henri Flamand
HQ London
The original Volcker Rule hedge fund, London-based Edoma Partners has attracted capital and column-inches in equally copious measures. When Goldman Sachs announced last year it was to close its internal trading team, Principal Strategies, following the unwelcome attentions of Dodd-Frank, group head Pierre-Henri Flamand’s decision to spin out was as exciting as it was unsurprising. Launching in December 2010, the Edoma Global Event Driven Fund soon found itself oversubscribed – quickly closing reportedly just shy of a cool $2bn. A 15-year Goldman veteran, Flamand was named head of prop trading in 2007. Ali Hedayat and Emmanuel Niogret were among at least five Principal Strategies traders to follow Flamand to Edoma.

Sureview Capital
Founded October 2010
Founder John Wu (CEO)
HQ New York
One of the first beneficiaries of Blackstone’s lively Strategic Alliance Fund II, Sureview Capital, a long/short equity manager, was founded at the tail-end of 2010 with a minimum $100m investment from the seeding giant. Established by former Kingdon Capital portfolio manager John Wu, the firm launched its first offering on 1 February 2011 – SEC filings at the time revealed combined day-one AuM at its onshore and offshore classes was at least $167m. Wu, New York-based Sureview’s CEO, left Kingdon in February 2010 with his plans apparent; instantly garnering press attention and propelling him onto the watch-lists of numerous investors.  

PointState Capital
Founded November 2010
Founder Sean Cullinan (CEO)
HQ New York
New hedge fund firms don’t get much bigger than New York-based PointState Capital. An SEC filing from January showed that the firm – a result of both managerial and investor alumni at Duquesne Capital Management, the hedge fund giant that announced in August 2010 it was returning all outside capital – had launched its first offering, the PointState Fund, with at least $1.53bn. Reports at the time, however, suggested the firm would in reality be magnetising a total of $5bn; $1bn from Duquesne founder Stan Druckenmiller and a further $4bn from other former Duquesne investors. Such a total would make it the second-largest hedge fund launch of all time. The firm, led by ex-Duquesne vice chairman Sean Cullinan, reportedly closed to new investment shortly after inception. One to watch for size alone. 

Corvex Capital
Founded December 2010
Founder Keith Meister (CEO)
HQ New York
Yet another example of a hedge fund protégé striking out on their own, Corvex Capital, an event-driven hedge fund manager, was founded by Keith Meister, an eight-year veteran of Carl Icahn’s activist hedge fund titan Icahn Management. Taking fellow Icahn employee Rupal Doshi with him, Meister launched his first fund, Corvex Partners, in March 2011 with $300m in AuM (including a $250m investment from Soros Fund Management). AuM reached $500m in August 2011, with assets believed to be of a similar size as of the beginning of September.

Taylor Woods Capital Management
Founded January 2011
Founder George ‘Beau’ Taylor (CIO) and Trevor Woods (President)
HQ Greenwich, CT
Former Credit Suisse execs George ‘Beau’ Taylor and Trevor Woods hit the ground running with their new venture, the commodities-focused Taylor Woods Capital Management, attracting a reported $150m seed investment from the Blackstone Group. The firm, parent to the Taylor Woods Fund, which returned 3.22% in the four months since trading began on 1 February, has since grown to exceed $500m. While at Credit Suisse, which the pair left in September 2010, Taylor was head of global commodity proprietary trading, while Woods’ team traded global energy. The duo is aiming to grow the firm’s assets to $1bn in the not-too-distant future. Few would bet against them doing so.

PAMLI Capital Management
Founded January 2011
Founder Faisal Syed (CEO)
HQ New York
A former Highbridge Capital Management chief, Faisal Syed (pictured) launched PAMLI Capital Management, based in New York’s Rockefeller Plaza, in January, simultaneously debuting the firm’s first offering, PAMLI Global Credit Strategies. Asset growth at the fund in the months since has been strong, growing from $50m upon launch to $115m as of September.  A managing director and portfolio manager at Highbridge Capital Management, Syed built and ran the Credit Relative Value Strategy and was co-manager of the Highbridge Fixed Income Opportunity Fund. He managed peak combined assets of $1.2bn, generating positive annual returns from 2006 to 2009. “While the capital-raising environment for smaller funds was challenging at the beginning of 2011, the investment opportunities in relative value credit are very compelling,” Syed tells. “Over the course of the year, investor interest in smaller managers has increased as a result of: large funds reaching capacity; and investors’ belief that  small/mid-size funds are better positioned to successfully navigate volatile markets that may turn less liquid. “There will continue to be an increase in investor interest for small/mid-size funds as larger funds become more institutional and get sized out of certain markets/investment opportunities.” As for 2012, Syed’s plan is to “keep growing our assets and investment/business resources.”

Bramshott Capital
Founded February 2011
Founder Paul Findley (CEO)
HQ London
A top trader at Moore Capital, Paul Findley left to go it alone at the end of last year. Registering Bramshott Capital in February, the firm launched The Bramshott Europe Fund, a long/short European equity offering, with seed investment only on 2 May. One of the most anticipated launches in the European equity space, the fund opened to external investors on 1 June with $450m in AuM. As of 1 September AuM stood just shy of half a billion dollars. Prior to founding Bramshott (named after the small, Hampshire village where its founder grew up), Findley ran Threadneedle’s UK high alpha team, having joined the firm in 1998 from British Aerospace.

Bow Street
Founded February 2011
Founders Akiva Katz and Howard Shainker (co-managing partners)
HQ New York
Bow Street LLC was formed in February by Akiva Katz, previously with Brahman Capital, and Howard Shainker, formerly at Dan Leob’s Third Point. The firm made further headlines after receiving a reported $100m seed investment from the Blackstone Group via its Strategic Alliance Fund II. With a vote of confidence from the industry’s premier seeding firm, the firm launched the Bow Street Master Fund, an event-driven strategy, on 1 July 2011. Prior to founding Bow Street, Shainker was a senior member of Third Point’s long/short team, where he shared responsibility for building out the firm’s mortgage portfolio and sat on the firm’s risk committee. At Brahman Capital, Katz was a managing director. The pair graduated from Harvard Business School in 2006.

Azentus Capital Management
Founded February 2011
Founder Morgan Sze (CEO)
HQ Hong Kong
Few launches have generated as much excitement in the past 12 months as Azentus Capital Management, the brainchild of Morgan Sze, former head of Goldman Sachs’ Principal Strategies group in Asia. “In terms of potential, this is A+ and beyond,” said one contributor. The firm’s Azentus Global Opportunities Fund, a multi-strategy offering that employs equity long/short, credit and capital structure arbitrage strategies, debuted to much fanfare on 1 April 2011 with $1.06bn; instantly making it one of Asia’s biggest hedge funds. Perhaps unsurprisingly due to the founder’s pedigree, the fund proved a capital magnet, passing the $2bn mark at the beginning of August. Now closed to new investment, the fund’s AuM stands at $2.03bn. In terms of performance, the fund has kept its head above the choppy waters of recent weeks, up 0.43% for August for the regular 2/20 share class. Azentus CEO Sze, rumoured to be the recipient of one of Goldman Sachs’ largest ever bonuses back in 2006, is believed to have taken a further 12 propriety traders with him from his Goldman team, forming his firm, based in Hong Kong’s ICBC Tower, (pictured) with a staff of close to 30. Roger Denby-Jones, formerly CEO at Boyer Allan, was appointed COO earlier in the year.

Harbor Bridge Emerging Markets
Founded March 2011
Founder Michael Perl (CEO)
HQ New York
Perhaps overshadowed by the sheer scale of fellow Duquesne spin-out PointState, emerging markets specialist Michael Perl’s Harbor Bridge is nonetheless worthy of attention. The Harbor Bridge Emerging Markets fund launched on 2 May, and, while apparently having to do without the financial backing of Duquesne founder Stan Druckenmiller, received a significant vote of confidence in the form of a reported $125m seed investment from Blackstone’s prized Strategic Alliance II Fund. Perl managed a $1bn portfolio during his five years at Duquesne. Prior to that he spent time at Sloan Robinson and Morgan Stanley Investment Management, where he focused on Latin America.  

Nokota Management
Founded April 2011
Founders Matthew Knauer and Mina Faltas
HQ New York
In keeping with the trend of big names seeding former employees, David Tepper has given both blessing and investment to Nokota Management, the new hedge fund manager co-founded by former Appaloosa analyst Matthew Knauer. Fellow co-founder Mina Faltas is also of strong pedigree – himself a former analyst at $11.5bn Viking Global Investors. Knauer covered technology, media and telecoms at Appaloosa, while Faltas’s Viking stint saw him invest in distressed debt and public equities. Reports in May suggested the pair were due to begin trading their first fund in Q3 2011 with $250m. A source who preferred to remain anonymous has told the actual figure could be closer to $400m.

Trend Capital
Founded April 2011
Founder Ashwin Vasan
HQ Greenwich, CT
One of two firms on the list to spring from the void left by Shumway Capital Partners – the one-time $8bn hedge fund manager that revealed in February it would be returning client money – Trend Capital is the creation of Ashwin Vasan, Shumway’s former head of macro trading. The new venture received a boost from Chris Shumway himself, who reportedly seeded the firm with $100m, and in August rolled out its first vehicle, the Trend Macro Fund, a strategy trading in stocks, bonds, currencies and commodities. According to an August SEC filing, launch AuM was at least $106m.

Glade Brook Capital Partners
Founded April 2011
Founder Paul Hudson (CEO)
HQ Greenwich, CT
Glade Brook Capital Partners, the global long/short hedge fund manager was formed by Shumway Capital Partners veteran Paul Hudson and is due to launch its first fund on 1 October. Impressive day-one assets owe much to Hudson’s former boss, Chris Shumway, following a reported $100m seed investment; the same amount given to fellow Shumway protégé Ashwin Vasan. Launch assets will be in excess of this figure. Glade Brook has been on a recruitment drive of late, including analysts Edward Liao and Colin Kronewitter; and head trader Sean Riley, himself ex-Shumway. The new fund’s strategy will focus on the TMT and consumer sectors.

Benros Capital Partners
Founded May 2011
Founders Daniele Benatoff (head of research) and Ariel Roskis (CIO)
HQ London
The third firm on the list to spin out of Goldman’s prop desk, Benros Capital comes from GS senior members Daniele Benatoff and Ariel Roskis. The firm’s first fund, the Ben ros Event Driven and Opportunities Master Fund, launched in June with a headline-making $300m seed investment from Brummer & Partners, the $10bn Scandinavian hedge fund giant. The fund is “currently still over $300m and growing steadily,” one source with knowledge of the matter told. The firm manages the one fund and is still open to new money.

Principia Capital Advisors (PCA) Investments
Founded June 2011
Founders Wing Lau and Hang Hu
HQ Hong Kong
Were it not for Morgan Sze’s headline-grabbing Azentus Capital, the hedge fund industry would likely name-check Principia Capital Advisors (PCA) as Asia’s biggest launch in 2011, having raised assets reportedly totalling $750m. Formed by Wing Lau, a former executive at Merrill Lynch’s Asia-Pacific branch, and Hang Hu, about whom details are few and far between, the firm was expected to debut a CTA fund in late summer, utilising a trio of strategies covering persistent trends in markets, equity and credit. PCA, which received its regulatory licence in mid-June, has offices in Hong Kong and Beijing.  

Academy Investments
Founded June 2011
Founder Ellen Wang
HQ New York
Unusual in the sense that it is not seeking seed investment, Ellen Wang’s Academy Investments is nonetheless expected to have investors lining up when asset-gathering begins in earnest – believed to be imminently. Reported launch capital of $10m is partner money only. Wang quit her role as head of quantitative trading at the Clinton Group in late 2009, having taken her $1.8bn portfolio to annualised returns of more than 21% since 2005. Academy’s quant strategy, which will target between 5,000 and 10,000 trades a day in US, Canadian and Asian markets, has spent the summer in paper trading. Clinton Group veterans Donald Cambieri and Harlan Simon will run Academy’s marketing division.

Apson Capital
Founded June 2011
Founders Daniel Goldstein (CEO), Edouard Salet (PM) and Boris Pilichowski (PM)
HQ London
London-based Apson Capital launched its initial offering, the Apson Global Fund, in July 2011 with $75m AuM. Seed capital is believed to have come from an unnamed US investor. Still open to new money, the macro-focused, long/short equity fund has since risen to $85m. The three founders have a range of experience and a strong pedigree. CEO Daniel Goldstein is an Alumni of BNP Paribas in London, where he was the head of equity flow sales. Portfolio manager Boris Pilichowski has a background as a prop trader, with experience at Goldman Sachs, Morgan Stanley and, most recently, Deutsche Bank. Fellow portfolio manager Edouard Salet, perhaps the best-known of the trio, was previously with Deephaven Capital Management, where he ran a global multi-strategy fund. He left following the firm’s sale to Stark Investments in 2009. “We believe in the primacy of risk control,” says Salet. “Given the uncertainty facing the economy and markets we think our strict discipline around risk management will help us deliver superior risk adjusted returns over the cycle.” Prior to his stint at Deephaven, Salet was at Gartmore, launching the AlphaGen WhiteOak Fund at the end of 2002. He left for Deephaven in 2004. Goldsetin used to sell Salet derivatives from Goldstein while at BNP Paribas and, before that, for Lehman Brothers, which he left for BNP in 2006.

BalanTrove Partners
Founded July 2011
FounderLawrence Clark (CEO)
HQ New York
Details are scarce on BalanTrove Partners, the new hedge fund from former Harbinger Capital chief Lawrence Clark. However, following Clark’s steady rise under the tutorage of industry luminary Philip Falcone, expectations for the New York-based firm are high. Clark resigned from Harbinger in January 2011, having been responsible for investments in, among other sectors, metals, mining, industrials and retail companies. He joined the firm in 2002, becoming a managing director in 2006. Confirming Clark’s departure in a note to investors, Falcone said: “I have no doubt that he will have continued success and I am confident that we will maintain our close relationship.”

Avantium Investment Management
Founded August 2011
Founders Kay Haigh (CIO), Arnd Sieling (CEO), Scott Kramer (PM) and Felix Hofmann (PM)
HQ London
Borne of Deutsche Bank’s macro trading team, Avantium Investment Management is considered one of Europe’s most exciting prospects. The firm is due to launch its first fund, the Avantium Liquid EM Macro Master Fund, on 3 October, with assets in excess of $200m, having garnered interest from a spread of institutions, funds of hedge funds and family offices in the US and Europe. Retaining seven members of his original Deutsche team, where the focus was emerging markets interest rates and FX, Avantium has since grown to be a 12-man operation. This launch “has
quality written all over it,” said one independent contributor. Kay Haigh (pictured) spoke to give his thoughts on what makes a successful launch. “Clearly the marketplace has shifted over the last few years,” he says. “I believe that for a start-up to be successful in 2011 there are four characteristics required: Team continuity; a strong calibre of individual; the right strategy; and an institutional infrastructure. Avantium incubated at Deutsche Bank for two years – the team, the strategy, the risk management structure; everything is identical. “Investors want to invest in a tried-and-tested team,” Haigh adds. “Emerging markets clearly has a lot of interest from investors, but has a reputation for higher beta. My strong view is that you can no longer charge 2/20 just for access to emerging markets. We’re diversified and offer alpha. “Lastly, you need to be committed to an institutional infrastructure. It’s key these days.”

Astellon Capital Partners
Founded September 2011
Founders Christian Vogel-Claussen and Bernd Ondruch (co-PMs)
HQ London
Astellon Capital Partners, a European event-driven manager focusing largely on German-speaking nations, was registered by the FSA at the beginning of the month. The London-based firm – co-founded by Bernd Ondruch and Christian Vogel-Claussen, former investment chiefs covering Germany, Austria and Switzerland at Amber Capital and Laxey Partners respectively – is scheduled to launch its first vehicle, the Astellon Special Opportunities Fund, on 1 October. A seed deal for €200m ($273.5m) has already been struck with a number of primarily German- and Swiss-based investors.

Next would be our fund …………… Will let everyone know

Thanks

BulldogBillionaire

 

Best mutual fund schemes? Please don’t ask your banker about it!

The maximum commissions being paid by a mutual fund company is to banks, often of the same group, for pushing their schemes. And SEBI wants fund companies to control distributors!
What are the best mutual funds to invest in? There are various easy ways of finding this out. But one of the worst ways is asking your bank relationship manager. Sample this data. Of the Rs21 crore commission paid out to major distributors by Axis Mutual Fund, Rs 14.19 crore or 68% has gone to Axis Bank. Of the Rs288 crore commission paid out by HDFC Mutual Fund one of the largest chunks (14%) has gone to HDFC Bank, which is 35% of the commission earned by HDFC Bank. It is the same with other groups which are into both banking and mutual funds businesses. And when the money is not going so much to the bank of the same group, it is going to another bank.

Clearly, for each bank, the best mutual schemes are none other than the schemes belonging to their own group or the ones that offers the maximum commission. This makes a nonsense of the Securities and Exchange Board of India’s (SEBI) efforts to ensure that distributors do sell fund schemes in an unbiased manner in the interest of customers. To this end, SEBI had issued a direction to asset management companies in 22nd August. As per the SEBI circular, mutual funds are supposed to ensure that customer relationship and transactions shall be categorised either as ‘advisory’ or ‘execution only’. For the advisory function, the distributor will sell “only that product categorisation that is identified as best suited for investors within a defined upper ceiling of risk appetite. No exception shall be made.” For the ‘execution-only’ relationship, if “the distributor has information to believe that the transaction is not appropriate for the customer, a written communication be made to the investor regarding the unsuitability of the product. The communication shall have to be duly acknowledged and accepted by (the) investor.”We had pointed out that this circular was meaningless. “AMCs are really at the mercy of large distributors and SEBI’s move to regulate the latter through AMCs only means looking at the problem of mis-selling from the opposite end! Unless SEBI regulates large distributors directly, the 22nd August circular will have far less meaning than what is intended.

The data showing that banks push hard schemes belonging to the group which may or may not be in customer interest proves our point once again. Here are some facts based on thousands of customers we interact with. Mis-selling by banks is pervasive. Bankers command enormous reach and trust among their customers. All banking processes are geared to maximise sales and profits and this leads to hard selling of products by the so-called ‘relationship managers (RMs)’. RMs at banks have to meet stiff sales targets month after month. They often don’t have sufficient knowledge of the products and learn quickly on the job that the only thing that matters is the sales target. So they just learn to make money from gullible investors.

Unfortunately, savers don’t know this and tend to trust their bankers. After all, that is the place where they keep their savings.

Banks have a readymade database of their clients’ personal details and their financial situation. Armed with such information it is easy for them to cross-sell financial products such as mutual funds and insurance. But this selling usually does not take the customer’s interest into account. It is purely driven by commission. The most glaring one which the wealth management arm of Kotak Mahindra Bank misled a customer into investing in its India Growth Fund at a steep premium, based on bogus claims and duped him of Rs2.27 crore.

Now that it is proven that banks are pushing hard fund schemes fund companies of the same group, how does SEBI plan to address this issue? And where does SEBI’s recent concept paper to deal with conflict of interest by separating advisory and sales stand now. They can have one desk which ‘advises’ and another desk that ‘executes sales’. It would be the same organisation—and the same mis-selling.

Thanks

BulldogBillionaire