investment

Do Hedge Funds lose tailwind?

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Dear Fund Director,

According Preqin research, the institutional investors are less willing to invest in Hedge Funds in the coming 12 months. The respondends is a worldwide representation of institutional investors including managers of pension plans, endowments, foundations, asset management companies, insurance companies, banks and familiy offices among others.

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This is the natural response to an increasing discontent with regards to the performance achieved by this asset class during the last months, which indeed it reaches its historical peak of having fallen short of investor’s expectations.

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It is also interesting to analyse the disparity of opinion among the different strategies within the Hedge Fund class.

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Taking all these data into account, I would suggest to follow up during the coming months the inflows and outflows of those funds under mandate which can be following one of the less liked strategies and to improve communication and transparency with existing clients in order to ensure the Assets under Management don’t suffer.

Yours faithfully,

The Indeep Fund Director

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Markets plunge: contact the fund manager

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Dear Fund Director,

The markets are plunging. It is the 4th business day in a row they are in panic. Losses in the main equity indexes are relevant. Most probably the funds with equity exposure, no matter which region, may be suffering. Probably now is a good time to know what the fund managers think about the short a mid-term markets evolution and which actions they are going to carry out. These questions are useful to gather different market views, to let know the fund managers that you are following their funds and to protect yourself in case things go extremely worse.

Remind that your role as a fund director is to monitor all areas of activity for the funds under your mandate. Moreover, to ensure that your controls are traceable can be extremely useful in case of the regulator or auditors ask you for evidence of this control.

In the meantime, find an El-Erian’s article which can give you some good arguments for your coming conversations.

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Yours faithfully,

The Indeep Fund Director

Turnover Rate: ¿angel or devil?

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Dear Fund Director,

Historically, the turnover rate has been a double edge sword. Fund managers were afraid of it because it meant more cost (and less performance), while financial executives tended to like it because it was seen during several decades as the milky cow of the group. In my opinion, regulation was soft at that time when TER ratios were promoted and did not include the impact of brokerage fees in the ratio. However, Mifid II tried to correct it kind of successfully. Find below the evolution of this ratio, which is showing a decrease in these last years.

Having said that, some investment strategies and asset classes require higher turnover rates. The size of the fund matters as well, given the difficulty of rolling big positions in some funds with huge assets under management.

A high turnover rate should not be considered as a negative element for itself. It may show that the fund manager is active and in this case, if this higher activity means higher returns and lower volatility for the fund, then it could be more than welcome. On the other side, if fund performance is average or poor, drawdowns are not reduced and volatility is average within their asset class, you should really ask the fund manager to explain why the figures are so high?

Yours faithfully,
The Indeep Fund Director

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Hedge Fund new investment strategies

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Dear Fund Director,

Interesting video about new investment strategies carried out by Hedge Fund managers.

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Yours faithfully,

The Indeep Fund Director