Investment Management
Review - Volume 1 : Issue 2
What's in Volume 1 : Issue 2?
Fight or unite?
Whether hedge funds and private equity will clash or co-operate is the theme of ‘Alternatives in collision – hedge funds venture into private equity’ .The returns on many popular hedge fund strategies are not expected to reach the heights of the past, but private equity is experiencing a new boom. It is not surprising that hedge fund managers see private equity as a major attraction and the prospects for conflict and convergence, themes much discussed in the industry this year, are examined.
Where next for hedge funds?
The hedge fund industry continues to grow and with growth comes potential problems. The analysis by Strategic Insight, ‘Hedge fund capacity, growth and competition’, looks at how serious the problems are and points to important developments in the interaction between the hedge fund world and the mainstream industry.
Institutions going too far
‘Stop the activist bandwagon – the dangers of institutional shareholder activism’ attacks much of the flawed thinking behind the growing bandwagon of institutional investor activism. It is explained that the feeling that, if a little of something is good, then more is better, is in this case based on misplaced intuition and does not stand up to analysis.
Asset liability not a panacea
Asset liability modelling is widely put forward as a starting point for pension funds’ asset allocation. ‘Asset liability modelling – issues for pension funds’ outlines the limitations of the approach and suggests additional ways of going forward.
DIGEST
Will markets blow up?
The downgrading of Ford and General Motors debt in May this year lead to heightened fears of a systemic crash in credit derivatives. ‘Is credit the time-bomb?’ and ‘Will computers cause the catastrophe?’ look at the justification for these fears.
Blurring boundaries
In ‘A new threat to fund managers’, it is explained how investment banks’ sale of structured products is perceived as a major threat to the fund management industry.
Winners and losers
The question of global houses competing with locals has been a recurrent theme around the world. A newer theme is that the industry is polarising into a barbell structure, with passive funds at one end of the spectrum and hedge funds, amongst others, at the other, squeezing traditional funds in between. The two articles, ‘Globals beating the locals’ and ‘Traditional funds still dominate’, examine the latest developments with respect to these themes.
A dying breed
Once, the Swiss private banks stood tall, proud and independent on the world’s investment management stage. Another possible episode in their decline from those heights is outlined in ‘Independent Swiss private banks – a slow death?’
Cuddliness to come?
The US Securities and Exchange Commission has given investment banks and asset managers a hard time in the last few years. Will it all change now? ‘A business-friendly regulator’ looks at the possibilities.
Up for adoption
Small mutual funds in the USA are now seeking to go under the umbrella of bigger parent groups. How both parties can benefit is outlined in ‘Parents and children?’
Consultants adapt
For asset manager selection, institutional investors have long relied on consultants, but the latter’s hitherto dominant role is under challenge from several directions. How they respond to a particular challenge is outlined in ‘Consultants and conflicts’.
Advance of wraps, retreat of baby-boomers
‘Wrapping up products’ outlines the prospects for fast-growing wrap accounts, a vehicle highly popular with clients.
The post-war baby-boomers are now beginning to retire. As they stop saving and start spending, will it hurt mutual funds? This key question is touched on in ‘Are baby-boomers hurting the mutual funds industry?’
Growth and challenge
Money market funds are much less developed in Europe than in the USA, but are growing fast. The main factors driving this growth are detailed in ‘Money market funds – can Europe get closer to the US?’
In ‘ETFs steaming ahead’ the challenge to mutual funds in the US from fast-growing ETFs is outlined. Mutual funds do have some weapons with which to fight back.
The structured products bandwagon – health and safety issues
Structured products are expected to become increasingly popular among European retail investors. This prospect has both its advocates and detractors. Several key issues concerning this fast-growing area are discussed in ‘Structured products – are they a bandwagon?’
The risks posed by capital-guaranteed products are pointed out in ‘Are capital guarantees really safe?’
Bet on house prices
Structured products for betting on house prices amongst other things are one of the latest vehicles to be offered on a new trading platform in the US, as detailed in ‘A new frontier for structured products’.
Streamlined securities trading
It’s all change on the securities trading front, with major benefits in prospect for fund managers. The four articles ‘A global securities market?’ , ‘What next for the London Stock Exchange?’ , ‘The coming war between exchanges – ETFs a key battleground’ , and ‘NYSE capturing structured products’ go into mergers and alliances between key exchanges, and describe the shift to increased electronic trading.
Ratings systems – new come in, old attacked
A new rating system for securitisations is the subject of ‘Fitch produces new ratings’ . In the arena of mutual funds, Edhec, the business school, sharply attacks the quality and usefulness of the rating methodologies of leading agencies. See ‘Edhec slams the old rating systems’.
The performance persistence controversy
That performance does not persist is a widely held belief. Two new studies with a fresh approach highlight the flawed basis of previous research and suggest that performance persistence of the right sort does prevail and that talent counts. These studies are outlined in ‘A track record does point to future performance – a rare approach to persistency studies’.
Upheavals in research
The supply of investment research to asset managers and retail investors may never be the same again. The rise of independent research houses, the problems and advantages they face, and investment banks’ new research models are all charted in the three articles: ‘Independent research – the positive outlook’ , ‘Independent research – the negative outlook’ and ‘Revamp of sales-side analysis’ .
Intangibles in research
Several leading asset management companies have come to the conclusion that sell-side research does not sufficiently take into account key intangibles and have therefore got together to form an organisation to encourage more research on this front. Developments in this respect are outlined in ‘A new type of broker research – analysis of intangibles’
A new global asset class?
The investment potential of projects involving partnerships between the private and state sectors is considered in ‘Private finance initiatives’
The Dutch – world-beaters on pensions
The Dutch are well ahead of the Americans and the rest of the world in the field of defined benefit (DB) schemes. With the rise of defined contribution schemes, a cloud surrounds the future of DB schemes. ‘Dutch pensions – global leaders?’ suggests that the Dutch approach is the best way forward for these schemes.
Hedge funds exploring new territory
Hedge funds discover new hunting grounds in the unlikely fields of reinsurance and pulp, and in the new arena of global warming. The City of London acquires a new string to its bow, with its world leadership in yet another field. These developments are outlined in ‘New pastures for hedge funds’
Can hedge funds with their short-term outlook cope with real estate, a traditional long-term investment? Yes, they can, as explained in ‘Hedge funds in real estate’.
Small investors at risk
A possible mis-selling crisis arising from the interaction between the workings of the EU’s UCITS III directive and the retailisation of hedge funds is the theme of ‘Are retail investors at risk?’
The new boom in private equity …
Private equity is now booming worldwide, having bounced back from the equity market doldrums of recent years. There are several items on this subject, covering developments in Europe and Asia and the growing demand from pension funds.
… but plenty can go wrong
The very scale of private equity activity is creating fears of a blow-out in the sector and possible catastrophic implications for wider financial markets. These issues are outlined in three articles: ‘A hung bridge in leveraged buyouts’ , ‘Private equity and leveraged loans – a time bomb?’ and ‘Will previate equity cause a financial market blow-out?’. A lesser, but still important, problem is the adverse effect on European corporate bonds from European buy-out activity. This is outlined in ‘A new danger for European corporate bonds’.
Real estate – technical issues
We highlighted in our first issue (pages 50-51) the growing status of real estate as a global asset class and new developments, such as derivatives, that are facilitating this. However, in several technical respects, real estate is still underdeveloped compared with the mainstream asset classes of bonds and equities. One of the issues concerns adequate indices and ‘Structured products and real estate – a boost from the FTSE’ looks at progress in this sphere. Unfortunately, the same progress is not yet seen in fee structures and ‘Chaotic fee structures?’ outlines the problem.
Profit or pleasure
‘Profiting from abstinence’ considers the dilemma facing fund managers who are connoisseurs of wine.
Academic corner
That ethical investments do not perform is widespread wisdom, but ‘Environmental friendliness and profitability’ outlines evidence suggesting the opposite conclusion.
Snippets
These are recent news items of significance.