Europe witnesses increase in start ups
Spurned on by the advent of mainstream investors, even the traditional investment consultants are advocating investing in alternative assets it seems. Watson Wyatt has introduced its Structured Alpha model advocating 40% of clients portfolios should be managed passively. A further 40% should be managed by up to three core managers and specialist satellite managers should manage a further 20%. It is this latter category that Watson has stepped up the search for hedge fund managers where today they have little in the way of proprietary research. Their focus has been in the area of market neutral, long/short equity managers. A survey from Greenwich Associates also showed recently that 23% of large fund managers are discussing employing hedge fund strategies against 15% who are presently using them.
Now many of the big institutional investment managers are now launching their own hedge funds. Both Gartmore and HSBC have announced the imminent launch of two funds which will seek better risk-adjusted returns than a pure equity portfolio. HSBC’s offering will be managed by Peter Harnett and Dean Buckley.
Roger Guy, the European markets supremo at Gartmore will launch his long/short equity fund in September. He already manages over a $1bn in Europe, with the lion’s share invested in the Gartmore European Selected Opportunities Trust. This fund gained a coveted five-star rating from Global Fund Analysis in the recent report on the top European equity managers. Eagle Star has made it know that they will be launching a capital guaranteed product built around a fund of hedge funds this summer.
Lazards have also lauched a European hedge fund which will seek to raise somewhere in the region of $25m this fall before closing.
Meanwhile, Europe’s markets are posing a problem for investors. At the macro level, a lot of uncertainty exists. The political background is murky - Europe lacks leadership - and the economic picture remains unclear.
Long-term bond yields are creeping up, and the euro’s weakness has deterred overseas investors, who have been keener to harness the fulsome recovery of the Asian markets. Germany, once Europe’s engine of growth, has been one of its weakest economies. Instead, all the action is at the micro level. The dynamics of restructuring and consolidation, especially in financial services and telecoms, have been creating the opportunities for the European hedge fund advisers.
For these managers, Europe appears to be the ideal environment, with markets that are both liquid and inefficient - which is why there are so many startups. One multi-manager recently counted 70 new European hedge funds among those he had met over the past 18 months. There are in fact said to be over 300 Europe-based hedge fund operations including the American stalwarts as Tudor Capital, and Perry Capital which has recently moved into new London premises.
However, what has become clear is, like their institutional counterparts, the European hedge managers have fallen into distinct camps – those that have been willing to embrace the growth stocks in Europe and have been caught out by the cyclical rotation into value and deeply discounted cyclicals, and those that focus on value. It is the latter have seen the spate of take-overs in Europe add lustre to their performance this year. Simon Hopkins