Active management supplies only half of hedge fund returns
Hedge funds and alternative investments returns have relied in part on fee and market returns with active management contributing just over half of returns according to investment analysis.
Ibbotson Associates Australia head of alternatives Michael Coop said long term analysis of alternative assets and hedge funds found that asset class returns has contributed up to half of returns in recent years.
Coop was speaking at the Morningstar Investment Conference held in Sydney last week. In response to a question at the conference regarding alternative managers achieving their stated objective he said that academic analysis of alternative investments and hedge funds showed market returns, as well as fees, had been a significant driver in performance.
"In terms of alternative funds most of returns are coming from the asset class and not manager skill. The academic analysis of the ability of active managers generally suggests it is not easy game and so investors need to be careful they add value," Coop said.
He stated that hedge funds had performed better with a study undertaken by Ibbotson examining hedge fund performance from 1994 to 2009 finding that the average hedge fund return was about seven per cent, with alpha contributing one to four per cent dependent on the investment strategy chosen.
"Part of the return was attributed to beta, that is market return and part was attributed to fees. The last part actually came from alpha and varied depending on strategies," Coop said.
However Coop stated there was evidence that active beta managers were able to generate further returns particularly when beta was not fixed.
"Looking at those hedge funds with exposure to equities in 1999, and then in 2002 and 2004 and so on showed they added value by making changes to equity holdings, but for those managers with a fixed base to those assets this was not the case."
Recommended for you
With an explosion of private credit managers appearing in the market, two alternatives experts believe a consolidation is needed to maintain the quality of the sector.
Bentham Asset Management has become the latest fund manager to expand its distribution team as it reports increased interest in its credit strategies.
L1 Capital, which is in talks to merge with Platinum Asset Management, has indicated it will be voting against a deal to convert a Platinum LIC into an ETF.
Evidentia Group has hired a head of quantitative investments who joins the investment firm and managed account provider from AMP.
