Australian Hedge Fund
Australian Hedge Fund Details
There's a great deal of mystery surrounding hedge funds - lack of transparency , aggressive trading strategies that apply leverage and short selling and high fees make them the bad boys of the managed fund industry. But is this criticism fair? Without good data its hard to say.
As if to support the sub-title of this blog "throwing light on the Australian hedge fund industry", Rainmaker has completed a detailed survey of the Australian hedge fund industry and with co-author Jon Glass will be presenting their findings at a Sydney briefing on Monday, 26th February 2007.
I have seen an early version of the report and there are some interesting findings.
* While the hedge fund industry in Australia is relatively new, its growth rate has been dramatic over the past four years.
* Typically, Australian hedge fund businesses are boutiques, with relatively low personnel numbers, low numbers of specialized investment products and are manager-owned.
* The overwhelming source of hedge fund capital flows in Australia is from the wholesale sector, particularly superannuation funds. Rainmaker records show 164 Australian superannuation funds have some form of investment into hedge funds.
* There is still significant capacity available in the Australian hedge fund industry suggesting continued growth, although some strategies are closer to capacity than others.
* There was evidence in the survey of a highly stable hedge fund workforce, a key factor in businesses that depend so much on the skills of individual investors.
* Of particular interest to investors (and regulators) fee benchmarks were established for each of the 7 main hedge fund investment strategy groupings. For example, the long short equity products were found to have average base fees of 1.27% and average performance fees of 19.3%. This level of fees doesn't warrant the high fee tag often associated with hedge funds, particualrly if they deliver results.
* While Sydney was found to be the home city of the Australian hedge fund businesses one of the largest sources of hedge fund clients is actually Melbourne.
* The research also included analysis of the main service providers to the hedge fund industry, prime brokers, administrators, auditors and lawyers, showing interesting trends such as concentration among a few in each category.
This is a great first step and I hope the survey is completed regularly to better guage changes in the industry through time. However, there is still a need for data that addresses questions short selling and leverage and other details of strategies that will help us to make judgments about the investment risk and systemic financial system risk associated with the hedge fund industry. Nevertheless, for anyone with a active interest in hedge funds in Australia, it sounds like the briefing is worth attending.
By Rick Steele