Kevin Gundle is not firing shots at hedge fund consultants. He wants some questions answered. Gundle is CEO of Aurum, a London-based hedge fund-of-funds (hedge FoF) managing $2.2 billion. He will speak at The New Alternatives conference, held by Conexus Financial, publisher of Investment Magazine, in Melbourne this month. For the past 16 years he and his team have run commingled and customised portfolios of hedge fund strategies for institutional investors. Staff members stand “shoulder to shoulder” with many of their clients by investing personal money in the commingled fund, he says. For years, hedge FoFs have managed customised portfolios of hedge fund strategies for investors alongside off-the-shelf, commingled vehicles. But the structural weaknesses of these ready-made funds, such as an additional layer of fees and the threat of investors withdrawing money en masse – like many did in 2008 – and compromising the success of remaining investors, has made customised portfolios more appealing for investors.
Some hedge FoF managers, such as K2 Advisors and Ramius, also provide ratings of managers to institutional investors running their own hedge fund programs. Research into the relative appeal of strategies in changing market conditions can also be part of the service. In such an arrangement, the hedge FoF does not invest a single dollar. They compete directly with consultants. In turn, consultants guiding investors through hedge fund land sometimes invest money on their behalf. The problem with this, Gundle says, is the results can be opaque. He sets a challenge for consultants who run money: “publish performance and see how you’ve done.” Jim Vos, co-founder and CEO of Aksia, an independent hedge fund research and advisory firm headquartered in New York, agrees this may be true of some generalist consultants. But Aksia has always provided research and advice to institutions building their own hedge fund programs. On the other side of the Atlantic Ocean, Simon Ruddick, managing director of Albourne Partners, picks his words very carefully. Albourne wants it understood that the consultant does not do implemented consulting, nor does it rate fund-offunds.
“We do not take on discretionary mandates and we do not help clients to pick fund-of-funds. We can understand why hedge FoFs might be especially concerned by consulting firms that do both,” Albourne says. Gundle’s criticisms apply to only a few consultants that he has encountered. He believes many gatekeepers – and he lists the Melbourne-headquartered JANA Investment Advisers among them – manage assets competitively and genuinely put clients’ interests first. Without a trace Gundle is wary of consultants who run implemented solutions without a performance history and transparency record comparable to those of successful hedge FoFs. “A lot of the governance issues that hedge funds confronted some time back are still playing out in the implemented world,” Gundle says. “It’s confusing for trustees. It’s opaque. There is no measure of how implemented solutions perform relative to how a product has performed in the market.” Gundle says Aurum has always been “100 per cent transparent” with its clients and prospects. It did not withhold – or “gate” – client capital during the financial crisis. Its investors could withdraw money at will.