The third annual Absolute Returns Funds conference for super funds, produced by Investment & Technology, canvassed a range of issues faced by super funds in assessing alternative investments.
GREG BRIGHT and MICHAEL BAILEY report.
Absolute returns strategies using al- ternative investments are far from dead post-crisis, it would seem, although their use in both asset allocation and portfolio construction is changing due to lessons learned from the past two years.
The annual Absolute Returns Funds conference for super funds, held in Melbourne in September, was told, for instance, that “after the flood” the hedge fund industry would be much more attractive to investors.
Greg Moessing, a managing direc- tor of the influential consulting group Cambridge Associates, said that this would be a smaller industry and the balance of power was shifting from dominance by general partners (manag- ers) to limited partners (investor fund structures).
“A little bit of humility has been a good thing,” Moessing said.“Access to high quality funds has definitely im- proved. Most hedge funds have eclipsed their high-water marks and that’s a good thing. There won’t be an exodus of talent (which had been feared).
For Cambridge’s 855 clients world- wide, which include some of the major US endowments, the recommendation has generally been for a maintenance in allocations to hedge funds, although within the sector there has been an un- derweighting of pure absolute returns funds compared with equity long/short strategies.
Eugene Snyman, Cambridge’s Australian head, said that private equity allocations were actually growing and there were some good opportunities at the moment.
“Secondaries investing is very at- tractive given some investors have an over-allocation (to PE),” he said.
The discounts available to second- aries managers in their purchases of private equity stakes, meant that diver- sification benefits did not come at the expense of returns, according to Mat- thew Arkinstall, of Greenpark Capital. His firm, for instance, had an average of 20 investments in managers who in turn had an average of 20 underlying invest- ments each.
“You probably wouldn’t sell a secondary in this market unless you really had to,” he said.
Meredith Jones, a managing director of Pertrac, said that when assessing the hedge fund sector, one could not tell whether a fund was good or bad based on a single average number.