Australian hedge funds (including offshore funds sold in Australia) returned 2.64 per cent in September, taking the year-to-date performance to 2.54 per cent. Fixed income and market-neutral strategies led the pack with returns of 7.83 per cent and 5.09 per cent respectively for the nine months to September 2010.
Strong year-to-date performances were captured by 36 South Regent Fund SPC (53+ per cent), RAB Energy Fund (32+ per cent), 90 West Global Basic Materials Fund (26+ per cent) and Naos Small Companies Fund (22+ per cent). Standard deviations for the industry rose marginally to 12.06 per cent from 11.85 per cent last month. Looking at longer-term performances, nearly one-fifth of funds (24 out of the 141 funds established after the start of the GFC in July 2008) produced returns of 15 per cent or more per annum based on compound annualised returns since inception. Most of the funds commenced in 2003 to 2007, although the oldest Australian fund on our database started in 1995. Our database now includes quite a few offshore hedge funds that are being sold in Australia.
This reflects the post-GFC environment where offshore managers have made a beeline to Australian investors, particularly as European and US investment flow had completely dried up. One aspect of dealing with Australian institutional investors (and their asset consultants) is their obsession with discounting fees. Some years ago, I took a manager to meet a prominent asset consultant. The very first question even before we described the product was “do you discount fees?” I always tutor overseas managers before their arrival that they get their ‘discounted fee’ story right. If they don’t discount, then they better have a compelling net-return story to tell.
I can say that I have often marketed into Europe and the US and only on rare occasions have I had the fee discount discussion. If it was agreed, it was on the understanding of a large allocation. Recently, I had Tom Strauss from Ramius roadshowing across the country. He raised the issue that good offshore hedge-fund managers could be deterred from visiting Australia because of the discount fee expectation. What worries me is that investment allocations to global hedge funds are starting to flow from Europe and the US again. As Asian growth continues, there will also be reasonable flows into alternatives from that region.
