capital to funds over $100 million twice those who can allocate to those under $50 million. Therefore, $100 million still seems like a key benchmark, at least for many investors.
Robert Leonard, managing director and global head of capital services at Credit Suisse commented: “Having forecast the strong rate of growth in the hedge fund industry in 2013, institutional investors predicted hedge fund industry assets under management to grow even faster this year by an average of 12%, to reach an all-time high of $2.8 trillion, with an upper quartile forecast of $3 trillion. If accurate, this updated forecast would mean at least an additional $300 billion for the industry in 2014, coming from both performance and new capital inflows. Investors were also more optimistic about performance of the overall hedge fund industry, increasing their expectations for returns this year.
“In this year’s survey we witnessed some dramatic swings in investor preferences, such as the increase in appetite for event-driven strategies, while interest in emerging markets strategies declined. Additionally, there were also strong shifts along regional lines, as investors indicated a higher level of interest in both Europe and Japan. At the same time, investors are also cognizant of potential issues such as capacity constraints and a crowded trading environment that could affect the industry in the coming year.”
BarclayHedge gains 2.00% in February Hedge funds gained 2.00% in February, according to the Barclay Hedge Fund Index compiled by BarclayHedge. The index is up 1.59% year to date. Sol Waksman, founder and president of BarclayHedge, commented: “Improving investor sentiment fueled by robust M&A activity and strong corporate earnings helped most global equity markets rebound in February, with the exception of China, Japan, and Russia."
For the second straight month, the Barclay Healthcare & Biotechnology Index led the way with a 5.01% gain, and is up 11.19% after two months of trading in 2014. “Year-to-date, the healthcare equity sector of the MSCI World Index is its top performing sector with a gain of 7.3%,” says Waksman.
The Technology Index was up 3.24% in February, the Event-Driven Index was up 2.91%, Equity Long Bias gained 2.91%, Distressed Securities were up 3.04%, and European Equities added 2.59%. The Equity Short Bias Index was hit hard in February, losing 3.87% for the month. The Global Macro Index was down 0.30%. The Barclay Fund of Funds Index gained 1.66% in February, and now has a positive return of 1.40% for the year.
Index transparency under focus Between August and November 2013, EDHEC-Risk Institute surveyed 109 institutional investors from across Europe, including Europe’s largest pension and reserve funds, insurance and provident institutions and their asset management subsidiaries, to document their expectations and requirements with respect to index transparency and take stock of their perceptions of, and the extent of their support for, the main directions of the ongoing regulatory debate on indexing and financial benchmarks.
Among the key conclusions of the resulting study, Index Transparency – A Survey of European Investors’ Perceptions, Needs and Expectations:
• Investors consider the provision of index transparency to be logical and indispensable. An overwhelming majority of respondents (85.2%) identify transparency as the best mitigator of conflicts of interest and only 12% view good index governance as sufficient to deal with these conflicts.
• Transparency is currently inadequate and seen to be so by investors. Only around a third of respondents are very (4.6%) or somewhat satisfied (30.3%) with the current level of transparency in the indexing industry. This perception is consistent with EDHEC-Risk Institute’s observations since, with a single exception, the index providers analysed as part of the study do not give access to the historical constituents of the indices, and for a significant number of smart beta indices, the methodologies described do not allow the indices to be replicated. Ultimately, 79.8% of respondents consider that the adequate level of index transparency is one allowing for historical (43.1%) or historical and live (36.7%) replication and only a tiny number (2.8%) are satisfied with disclosures designed to impart an understanding of the objectives and key construction principles of indices.
• There is a strong conviction that the rise of strategy indices makes transparency even more important (77.1% versus 11%) and that opacity undermines the credibility of reported track records (80.8% versus 17.4%), in particular for new forms of indices.
• Transparency does not harm the interests of index providers because it develops trust and accelerates the adoption of new indices. It does not lead to free services and lack of revenues. There are legal and contractual tools to defend index providers against the unauthorised use of their methodologies and data. In addition, the European regulator, ESMA, has limited the transparency of constituents and weightings to the periods preceding the last rebalancing,
which avoids front running and enables providers to conserve their replication service business. Transparency should not be monetised through opacity as it is a precondition to the proper selling and suitable uses of indices.
• Investors give very strong support (70.6% versus 21.1%) to the proposal that ESMA’s transparency rules should be extended to non-UCITS products and mandates.
According to Noël Amenc, director of EDHEC- Risk Institute and CEO of ERI Scientific Beta, “Transparency guarantees the efficiency of an index market that is becoming increasingly complex and sophisticated. The market needs to form opinions by sharing information and expertise. It is difficult to accept index providers conducting most of their marketing either with the idea of being a market reference, in the case of cap-weighted indices, or with simulated historical track records of outperformance, in the case of smart beta indices, without giving markets the means to check and question the representativity or the outperformance.”
February MSCI indices up Hedge funds bounced off the lows in January to finish February up 1.79% as global equity markets recovered, with the MSCI World Index gaining 3.87% during the month. Market sentiment held strong as weaknesses in recent US macroeconomic data were largely attributed to the weather conditions, with Fed chair Janet Yellen reaffirming the need to keep the QE tapering on track as the US economy continues its recovery. Emerging markets also showed signs of stability with the MSCI Emerging Market Index rising 2.15% during the month. Positive macroeconomic data from the Eurozone showed acceleration in manufacturing activity which provided further support to the markets, while tensions surfacing in Crimea towards the month end failed to dampen investor sentiment.
All hedge fund regional mandates ended the month in positive territory with the exception of Japan-focused hedge funds, which were down 0.94% during the month. Japanese equity markets continued to lose ground despite the global recovery as the developing situation in Ukraine brought about a rise in the yen as a safe haven currency, reducing the competitiveness of Japanese exports and pushing down Japanese stock prices. North American fund managers were the best performers during the month, returning 2.44% in February as the MSCI North America Index climbed 4.52%. The Eurekahedge Europe Hedge Fund Index rose 1.89% while the MSCI Europe Index gained 4.74%, aided by improving economic data from Greece and better than expected PMI data from the region. Asia ex-Japan funds were up 2.19%,
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