Gauging Institutional Interest and the Role of Regulated Investment Funds in a Post Crisis World - Presentation: Dominique Grandchamp, CFA, Mercer (Switzerland) SA
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Gauging Institutional Interest and the Role of Regulated Investment Funds in a Post Crisis World - Presentation: Dominique Grandchamp, CFA, Mercer (Switzerland) SA

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For more information contact: emailus@marcusevans.com ...

For more information contact: emailus@marcusevans.com

Dominique Grandchamp, CFA Senior Investment Consultant at Mercer (Switzerland) SA delivered his presentation titled "Gauging Institutional Interest and the Role of Regulated Investment Funds in a Post Crisis World - Presentation: Dominique Grandchamp" at the marcus evans European Pensions and Investments Summit

Join the 2015 Summit along with leading regional pension investors and global asset managers in an intimate environment for a focused discussion of key new drivers shaping institutional investment strategies today.

For more information contact: emailus@marcusevans.com



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Gauging Institutional Interest and the Role of Regulated Investment Funds in a Post Crisis World - Presentation: Dominique Grandchamp, CFA, Mercer (Switzerland) SA Gauging Institutional Interest and the Role of Regulated Investment Funds in a Post Crisis World - Presentation: Dominique Grandchamp, CFA, Mercer (Switzerland) SA Presentation Transcript

  • Gauging Institutional Interest and the Role of Regulated Investment Funds in a Post Crisis World 04 October 2011 Dominique Grandchamp, CFA Senior Investment Consultant Mercer (Switzerland) SA [email_address] +41 22 918 10 15
  • Agenda 2) The Present - Where is the Performance? 3) The Future - How to invest in Hedge Funds? 4) Ucits Hedge Funds Growth 1) The Past - Hedge Funds in a Less Regulated World 5) Conclusions
  • The Past - Hedge Funds in a Less Regulated World What Hedge Funds Have to Do Better….
    • Black boxes (lack of transparency)
    • Operational and investment risks
      • Counterparty
      • Concentration
      • Leverage
    • Valuation independence
    • Liquidity mismatch
    • Remoteness and lack of regulation of offshore domiciles
    • Limited asset control and weak corporate governance
    • Stronger correlation with markets than advertised and expected
  • Agenda 2) The Present - Where is the Performance? 3) The Future - How to invest in Hedge Funds? 4) Ucits Hedge Funds Growth 1) The Past - Hedge Funds in a Less Regulated World 5) Conclusions
  • The Present – Where is the Performance? Example: Switzerland’s Pension Fund System Cash Bonds 35% Equities 30% Real Estate 20% Commodities, HFs, PE 8% 7%
  • The Present – Where is the Performance? Example: Performance last 10 years Cash Bonds Equities Real Estate Alternatives Liabilities 1% 4% 0% 3.5% 5% 3%
  • The Present – Where is the Performance? Example: Low Yield on Bonds
  • The Present – Where is the Performance? Challenges ahead… Yield on bonds < Liability growth Uncertain performance of equities coupled with high volatility Look at more defensive, absolute return strategies
  • Agenda 2) The Present – Where is the Performance? 3) The Future – How to Invest in Hedge Funds? 4) Ucits Hedge Funds Growth 1) The Past - Hedge Funds in a Less Regulated World 5) Conclusions
  • The Future – How to invest in Hedge Funds? Take into account Investor Expectations Post-2008
    • Liquidity
    • Transparency
    • Regulatory Oversight + Onshore Domiciles
    • Asset Control + Security
    • Tax Efficiency
    • Performance and preference for low volatility (defensiveness)
  • The Future – How to invest in Hedge Funds? Hedge Funds increase Defensiveness Embed defensiveness in the equity bucket… … so as to reduce the overall risk Low Volatility Small Cap Broad market strategies Emerging Markets Defensive Strategies Small Cap Indexed Equities Emerging Markets Performance Drivers
  • The Future – How to invest in Hedge Funds? Hedge Funds increase Defensiveness Index- Strategies (MSCI World) Beta =1 0 0.25 0.5 0.75 1 1.25 1.5 Beta Equity Strategies Beta < 1
    • Minimum Variance- Strategies
    • Quality +Yield Strategies
    • Absolute Return Strategies
    Expand the investable universe Beta > 1
    • Emerging Markets
    • Small Caps
  • The Future – How to invest in Hedge Funds? Hedge Funds increase Defensiveness Defensive Strategies Active Managers Heuristic (Fundamental Indexing) Quality Strategies Optimized (Minimum Volatility) Absolute Return Variable Bias Indexed Strategies
  • The Future – How to invest in Hedge Funds? Hedge Funds increase Defensiveness CTAs Global Macro Relative Value Long/Short Equity Equities
  • Long-only Funds Offshore Hedge Funds + FoFs Onshore Hedge Funds (SIFs) 1 2 3 4 Mandates+ Managed Account Platforms 5 Ucits Hedge Funds 6 Indices+ Replication The Future – How to invest in Hedge Funds? Old and New Access Points
  • The Future – How to invest in Hedge Funds? The Great Convergence Trend towards absolute return Increasingly benchmark-agnostic Trend towards “onshorisation” Preference for liquidity and transparency Long-only Ucits III Mandates + Macs Onshore HFs (XIFs) Offshore HFs Liquidity High High High Medium Low Transparency Medium Medium High Medium Medium Asset Control Medium Medium High Low Low Tax Efficiency High High Low Medium Low Low Beta Low Medium High High High Regulatory oversight High High Low High Low Benchmark awareness High Medium Low Low Low Long-only Ucits III Managed Accounts Onshore HFs Offshore HFs
  • The Future – How to invest in Hedge Funds? Which Access Point for Whom? Banks Pension Plans Insurance Family Office FATCA LPCC UCITS Solvency AIFMD
  • The Future – How to invest in Hedge Funds? Which Access Point for Whom? Onshore, Ucits III Offshore HFs Family Office   Banks   Insurance   Pension Plans F,D,I,S,P   Pension Plans CH, UK, Holland, Nordics  
  • The Future – How to invest in Hedge Funds? UCITS Drivers…
    • Factors which will drive the further development of Ucits Hedge Funds:
    • Wealth Management / Retail Distribution
      • Regulatory pressure
      • Search for tax efficiency
      • Distribution efficiency (Ucits IV)
      • Investor preference for liquidity
    • Institutional Investors
      • Regulation in some EU jurisdictions
      • Growing acceptance from early adopters
      • Search for yield, absolute return, defensiveness in liquid+regulated format
      • Size of investable universe (length of track record and AuM)
  • The Future – How to invest in Hedge Funds? EU goes UCITS….
  • The Future – How to invest in Hedge Funds? Who does not love UCITS???
  • The Future – How to invest in Hedge Funds? Who loves UCITS???
  • Agenda 2) The Present – Where is the Performance? 3) The Future – How to invest in Hedge Funds? 4) Ucits Hedge Funds Growth 1) The Past - Hedge Funds in a Less Regulated World 5) Conclusions
  • Ucits Hedge Funds Growth 750+ Ucits Hedge Funds Up and Running # Funds # New Launches Source: Absolute Return
  • Ucits Hedge Funds Growth 120 Billion EUR AuM reached Source: Absolute Return
  • Ucits Hedge Funds Growth Length of Track Record Length of track record (years)
  • Ucits Hedge Funds Growth Fund AuM (EUR)
  • Ucits Hedge Funds Growth Risks
    • Performance expectations of investors (less leverage + illiquidity)
    • Higher beta rather than alpha generation
    • High barriers to entry for entrepreneurial ventures
    • Counterparty risks and hidden fees (total return swaps)
    • Corporate governance issues remain (related parties + directors)
    • Regulatory oversight (NOT regulatory protection)
    • Lower due diligence standards applied by investors
  • Agenda 2) The Present – Where is the Performance? 3) The Future – How to invest in Hedge Funds? 4) Ucits Hedge Funds Growth 1) The Past - Hedge Funds in a Less Regulated World 5) Conclusions
  • Conclusions Ucits and onshore Hedge Funds will continue to grow Convergence with long-only products Lower performance than in the past, defensiveness is welcome Institutional interest is taking off in selected jurisdictions Fund of Hedge Funds model challenged and struggling Stick to a robust due diligence process Traditional Hedge Funds remain to capture illiquidity premium
  • www.mercer.com Dominique Grandchamp Mercer (Switzerland) SA Avenue Reverdil 8-10 1260 Nyon Switzerland +41 22 918 10 15 dominique.grandchamp@mercer.com www.mercer.com