Hedge fund sector research starts to emerge

At longlast, the first attempts at providing independent, meaningful data for the hedge fund management sector are seeing the light of day.

InvestorWeb has published a report on the sector, looking at the larger hedge fund managers operating in Australia, while van Eyk is starting to prepare a report on the fund-of-fund managers.

InvestorWeb issued its first report into hedge funds in June. The report presented an overview of the global hedge fund sector, including definitions of the various types of fund, and rated nine Australian managers.

The outcome of the ratings was that three fund manager products (Rothschild GRF, Basis Aust-Rim Opportunity Fund and Basis Pac-Rim Opportunity Fund) were given a strong buy recommendation, InvestorWeb’s top rating classification.

The rest of the managers’ products were either rated buy or investment grade. Nobody scored a sell rating, InvestorWeb’s lowest classification.

InvestorWeb senior investment analyst David Smythe says the managers were researched by either face-to-face meetings or video conferencing.

“With fund-of-fund managers we looked at how the local manager had put together the other managers and the relationship between the various parties,” he says.

The problem for Australian researchers with fund-of-fund products is that most of the fund managers are overseas. The product provider is usually Australian but economics would generally preclude visiting each manager making up the fund-of-funds.

Smythe says with AXA, one of the fund-of-fund providers in Australia, InvestorWeb did video conferences with the actual managers in New York and Paris.

“We didn’t just visit the product provider,” he says. “But I accept that we will never be able to tap down and look at all the managers of a product.”

As more hedge fund managers target the Australian market, investment heads will come and visit these shores and Smythe says this will also present opportunities to check a manager’s experience and expertise. The researcher uses both qualitative and quantitative styles.

InvestorWeb is going to issue its report again next year and will review managers throughout the year.

“We will be looking at managers that have product available for master trusts, wraps or the adviser,” he says.

“We will leave the wholesale managers alone, but if they do something for the retail market then they will be reviewed.”

Van Eyk is only going to review fund-of-funds hedge products, says associate director Dragana Timotijevic.

“We will not be looking at single hedge fund managers and I will be visiting managers in the US and Europe shortly,” she says.

“We will be undertaking due diligence on about 30 managers on this trip.”

Van Eyk has already had preliminary meetings with the Australian managers of the funds.

“Quant research is very important to us and we will be undertaking this with our visit to see what these managers are doing,” Timotijevic says.

Van Eyk will be rating the managers and the results will be available in a report that will compare managers’ investment styles.

“We want to compare like with like,” Timotijevic says.

There is no indication at present when the van Eyk report will be available.