Emulation funds fail to prove short-term benefit
Despite the promise of lower costs, emulation funds have little benefit over their more liquid counterparts in the short term, research shows.
The specialised funds are designed to reduce trading activity and as a result, lower costs for fund managers.
But the gain in cost-saving is often offset by the opportunity cost of short-term trading profits, according to the Capital Markets Cooperative Research Centre (CMCRC), which tracked the funds over four years.
“One of the biggest pitfalls of emulation is that it fails to exploit the short-lived information value of the original trade signal,” Zhe Chen, CMCRC PhD Candidate from the Macquarie Graduate School of Management said.
“This leads to significant losses that appear to outweigh the benefits of reduced transaction costs.”
However, the research found emulation funds could be more beneficial given a longer lag, with the gains from lower transaction costs more likely to amount to real savings over an extended period of time.
Recommended for you
Australian fund managers are actively seeking to launch Cayman versions of their funds to attract offshore flows, with Regal Partners set to launch its latest offering this month.
As private markets gain traction in Australia but only a limited pool of talent is available, three recruiters explore whether fund managers should consider looking overseas to find top talent.
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.
