Local heroes strike it rich offshore

It is amazingly tough for Australian hedge managers. Usually, the best advice is to forget it, it’s too hard. But some local heroes have made good overseas, writes DAMIEN HATFIELD. The performance of Australian hedge funds, including offshore funds sold in Australia, fell 0.21 per cent in March 2011. Year-to-date performance is now 1.13 per cent. However, annualised compound returns since inception for the industry are a solid 10.97 per cent compared to six months ago when it was a still respectable 8.98 per cent. Industry-wide standard deviation is 11.53 per cent, marginally lower than the 12.06 per cent in September 2010. The top five funds in March deployed a wide range of investment strategies. Leading the industry was the RAB Octane Fund (global energy, marketed in Australia by Triple A) with 8.80 per cent for the month. Next was Mathews Velocity Fund, (5.3 per cent; long/short equities and commodities) followed by the Attunga Agricultural Trading Fund (5.17 per cent).

Others in the top five were Naos Small Companies Fund (small-cap Australian equities) and Mathews Capital Searchlight Asia Pacific Fund. The strong performance through a wide range of local and global investment strategies reflects a wealth of hedge fund talent in Australia. Unfortunately, some of this talent is being drawn offshore. For example, the recent UK Sunday Times Rich List has three Australians in its Wealthiest 25 Hedge Fund Manager section. The three, Michael Hintze, Greg Coffey and Hilton Nathanson, have either established successful hedge fund investment businesses (Hintze, CQS; and Nathanson, Marble Bar) or is a star investment manager for a major hedge fund (Coffey, Moore Capital). Michael Hintze, CQS’s founder, was 4th overall with £550 million net worth. An ex-Australian Army captain. You couldn’t meet a nicer guy. I first met Hintze whilst I was at Deutsche Bank in 1997 before he set up CQS. Now he manages in excess of $10 billion. Having seen the list, I did reflect on how this impressive group of Aussies would have fared had they set up business in Australia instead of the UK. Sadly, they would probably not have seen the same success.

Our most successful supposed hedge fund manager is Platinum’s Kerr Neilson who manages around A$18 billion. If you consider that Kerr started in the early 1990s, it has been many years of hard work. Between Neilson and the next largest manager, it is daylight. Maybe Kaiser or PM Capital with about $2 billion. These groups have struggled for years and have been successful against all odds. It is amazingly tough for Australian managers. Having said that, how many potential Michael Hintzes have we missed? And my favourite whipping post, our Australian Government and its associated bureaucracy, could foster an export industry worth billions. But no, they seem to try and make it increasingly harder for any fund manager to attract offshore investment funds even if the managed assets sit offshore. A collective message to our offshore hedge fund industry achievers, please retire back in Australia and set up a pool of capital to incubate Australian talent. In addition, set aside a substantial pool of capital to lobby Government on the sensible structuring of a funds management industry designed to manage the assets of international investors. Whether it be hedge funds or long only, the industry needs to be scaleable and tax-effective.