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Tyler Kim

2015 review: How was it for you?

Never fearful of asking the awkward question, AlphaQ questions its contributors and contacts from 2015 on their experiences over this quite challenging investment year.

Tyler Kim (pictured), Global Head of Fund Services and Chief Information Officer, MaplesFS

In 2015, the hedge fund industry continued to challenge its participants with new regulations (e.g. AIFMD and FATCA) and volatile markets. Additionally, we were reminded of the industry’s dependency upon its technological underpinnings – some of which have become archaic, convoluted and/or fragile – during a few high-profile incidents. Amidst this backdrop, the landscape for hedge fund services continued to change with significant acquisitions. It has been an interesting year to participate in this industry; those who are able to successfully navigate the turmoil and capitalise upon the opportunities that it creates, will emerge on top in 2016 and beyond.”

Shen Tan, managing director, Income Partners 

2015 has so far not been an easy year to generate returns – we have been able to achieve positive returns for all our strategies mainly because we have stayed true to our investment philosophy i.e. managing downside loss is as important, if not more so, than managing for upside potential. Markets have swung aggressively as investors are still very uncertain about the global economy – the key is not to be swayed or caught up by short term trends, and avoid value traps. To describe 2015: Challenging, but it could have been worse!

Kenneth Heinz, President, HFR Inc

Hedge funds started off 2015 with a bang, and have navigated wild swings in currencies, commodities, equities and bonds throughout the year. Recall the Swiss Franc abandonment of the Euro floor peg in January? It seems like that was years ago, given the speed of the market cycles which have developed and corrected in only a few months’ time. The HFRI Fund Weighted Composite Index, the globally established, broad-based benchmark barometer for aggregate hedge fund performance, has posted a gain of +0.03 per cent through October end. Low by historical hedge funds standards, yes, but also exceeding the return or yield of almost anything they could invest in, including many equity market indices, commodities and newly issued, short dated bills of the US, Germany and most financially solvent countries. In 2015, hedge funds are making money the old fashioned way, working hard to earn it.

Paul Jackson, Head of Multi-Asset Research, Source 

We think 2016 will provide more of the same as 2015 – moderate global growth, falling commodity prices and outperformance by equity-like assets. The Fed will be raising interest rates (at last) but we do not expect that to negatively impact risk assets. Favoured assets remain Eurozone and Japanese equities, Japanese real estate and emerging market sovereign debt (yes emerging market). Given the negative view on commodities (Brent to bottom between USD20 and USD30), the outlook for emerging market currencies is difficult. Hence, the safest way to invest in emerging market debt is in hard currency versions.

Anne-Gaelle Pouille, Partner, PAAMCO 

Barring a strong finish, 2015 will go down as a difficult year. The year started well with good equity dispersion (better shorting opportunities) and attractive trades notably in FX and rates curves. April was characterised by sharp reversals in many markets and by the summer, market jitters had taken over. This was particularly evident in sharp commodity and emerging markets drawdowns (fuelled by China). By sector, energy was on our radar as crude recovered early in the year only to slide again beginning in May (crude is close to 2015 lows as of mid-November), possibly a harbinger for a broader credit crunch. Healthcare should be monitored as a sector prone to shocks driven by politics (drug pricing, tax inversion). Financials are also of interest given the continuing Central Bank interventionism and potential opportunities for shorts in Asia. We expect the heightened volatility to continue, together with depressed liquidity. This environment may be challenging for fundamentally-driven strategies but should continue to reward portfolios diversified across styles and strategies.

Hector McNeil, Co-CEO, WisdomTree Europe Ltd

WisdomTree Europe had a superb 2015. We brought our global leading currency-hedged and dividend ETFs from the US business and we saw European growth of more than 340 per cent in AUM over the year. Assets under management grew from USD160 million to over USD700 million, strongest flows into short and leverage commodity ETPs and small cap dividend equity ETF. The firm now boasts 12 ETFs with multiple share classes under the WisdomTree brand and a further 64 ETPs under the Boost brand listed across five different exchanges. Monthly trading volumes also grew dramatically to over USD1.2 billion on average. Staff numbers up from 19 to 29 – with sales coverage in Italy, UK, Germany, Switzerland and Holland. Our aim was to give WisdomTree a more global footprint and a launch pad to make a significant entrance into the second biggest ETF market globally. I think it’s safe to say we achieved that.

Peter Coates, CEO of Omni Partners

2015 has been a difficult year in the markets, which have been pulled and pushed by events including the taper tantrums, monetary easing by the ECB and BoJ, China devaluation and market slump, energy price volatility, and sluggish growth across the Eurozone, Emerging Markets, and global economy in general. This volatility and uncertainty has helped our funds to do what hedge funds should be doing in this environment – to make money! The event-driven and M&A space has been particularly interesting, as years of pent-up activity has been unleashed at a time of reduced competition from proprietary trading desks, resulting in attractive deal spreads and decent volatility. This has allowed us to be opportunistic in our entry and exit points, and in the way we are able to structure some of our trades. Given the increased volatility in markets and deal spreads, it is not a ‘buy and hold’ strategy, but one which demands a great deal of analysis of deals, ability to trade around spreads, and the willingness to miss out on some less interesting deals. Despite the peer-group average returns for 2015 being muted, there are some strong outliers, both positive and negative. We see this strategy continuing to be an exciting opportunity through 2016 and beyond, given the strong current deal pipeline, high levels of cash on balance sheets, low-coupon debt, increased CEO confidence, difficult organic growth potential, lack of further cost-cutting abilities, as well as the dearth of deals from 2008 to 2014. We think the current M&A boom has plenty of room to run as global deal activity outside of the US has not yet started in earnest, particularly in Europe.

Charles Bathurst, Consultant to the Board, SuMi TRUST Global Asset Services

2015 has been a very positive year for SuMi TRUST Global Asset Services as the number of large global asset managers launching funds using our administration, trustee and depositary activity continues to increase. The development of strategic relationships in Europe and the USA also continues to expand. This growth has been in the primary areas of servicing Cayman fund structures, Irish UCITS and custody. In addition we are actively preparing for the introduction of UCITS V and the new depositary requirements. This ongoing growth, combined with ongoing technology innovation, has required additional staff in our Ireland and London offices as well as expanding the team in Tokyo to provide a real time 24-hour service model. The market uncertainty over the last quarter has not impacted the new fund launches using our services.

Townsend Lansing, Head of Short / Leveraged & FX Platforms, ETF Securities

In 2015, ETF Securities strengthened its market position in commodities while launching innovative new products in equities and fixed income. Despite the steep price declines in commodities, with the Bloomberg Commodity indices down more than 20 per cent, ETF Securities saw strong flows into many of its core commodities, reinforcing its position as commodity ETP provider of choice in Europe. Oil ETPs led the way, with total flows of around USD1 billion into our WTI and Brent products and an additional USD170 million into our short and leveraged range. Our range of currency hedged commodity products attracted strong interest as well, with USD170 million of inflows across the range, a 370 per cent year on year growth, as investors look to hedge currency volatility out of their commodity investments. Finally, our diversified all-commodities ETF saw record inflows of USD197 million this year, as investors positioned to take advantage of expected recovery in commodity prices. We also launched Europe’s first ETFs on robotic stocks and cyber-security equities and introduced an innovative partnership with Lombard Odier to offer fundamentally weighted fixed income ETFs.

Paul Ward, Managing Partner, Pantheon

It’s been an energetic year at Pantheon as we launched our dedicated real assets investment platform following the successful fundraising for our second infrastructure programme. We have also been making final preparations for our solutions serving the US defined contribution and private wealth markets. In our investment markets the heightened public market volatility in Q3 inevitably impacted IPO activity, but strategic sales for private equity-backed companies remain brisk, and consequently distributions continue to be buoyant. Investment levels have paused but the stronger economic outlook, lower energy costs, cheaper borrowing and a weaker euro set the scene for stronger investment activity.

Pete Hess – Senior Vice President and General Manager at SS&C

Advent Software’s 2015 was a year filled with excitement and change. We began the year with the announcement of an agreement to be purchased by SS&C for USD44.25 per share or USD2.4 billion dollars. We closed on this acquisition on 8 July and we have been running hard. Pete Hess remains the head of the business which he has reorganised into two highly effective business units Institutional and Advisory. Institutional is run by Rob Roley and Advisory by Dave Welling both long term Advent executives. New product releases have been delivered and we have won many mandates. We are optimistic about 2016.

Diane Radley, CEO of Old Mutual Investment Group

2015 marked a fundamental turning point in South Africa. Continued inequality and unemployment combined with corruption and lack of delivery created a perfect storm of social and civil unrest, culminating in the continuing #feesmustfall student protest movement. Investment returns were impacted by currency weakness, while global developed markets and local property were the assets to be in. Volatility returned to the South African markets as well as other emerging markets, and we were impacted by net foreign outflows based on concerns over ratings downgrades and low economic growth. Private market assets in the arenas of renewable energy and infrastructure across the African continent continue to be the top performing long-term investments and investing responsibly remains key to choosing great investments in these areas.

Hassan Jeraj, Investor Relations, Serone Capital Management

Serone Capital Management has continued to develop its business over 2015. We have attracted additional capital from new investors, with firm AUM over USD165 million at the end of September, created a commingled managed account including a large institutional investor (continental pension fund) and have achieved full AIF status. As designed, our strategy continues to perform in volatile markets, with our flagship fund up 9.10 per cent to end of September and only a one month drawdown of -0.57 per cent. The investment focus on core European, off the run, complex opportunities, which are on a pull-to-par path remains intact until at least 2018.

Nicolas Rousselet, Head of Hedge Funds, Unigestion

The first part of the year was very positive for hedge funds, as perspectives of a US rate hike generated currency volatility and equity sector dispersion. However the increasing likelihood of a US rate hike made financial markets jitter in the summer and while hedge funds suffered from it, their outlook looked brighter and brighter, as the long expected exit of US QE would be the source of many trading opportunities. Unfortunately, summer market jitters culminated in September and the Fed turned much more dovish than expected. This triggered a very powerful rally for all risky assets and hedge fund managers were essentially short squeezed. This year could have been a very good, vintage year for hedge funds, but the great rotation has been pushed back and the better environment for hedge funds with it, hopefully only for a few months.

Marianne Scordel, Bougeville Consulting

Broadly, I noticed three main features. The first one is that three years ago, clients were determined to set up their own fund businesses, including the operations that went with it. In 2015, they were more likely to come to me to solve problems relating to fund businesses they had built a couple of years ago. The second feature also has to do with more doom than boom: costs went up in the hedge fund industry – most of which were regulatory driven – and a higher proportion than usual gave up their plans, once they’d asked me to provide input into the financial projections and saw what the resulting numbers looked like. Finally, the emerging picture is a positive one for the longer term, I believe. As the operational environment is getting harder to navigate – and the markets more difficult to read – more managers are willing to seek advice, to prepare and to take calculated (rather than wild) risks, not just in terms of their investment but also as far as their businesses as a whole are concerned. 

Dr Michael Drew, Director & Consulting Financial Economist, Drew Walk & Co

On reflection, 2015 has been one of the most rewarding years of my professional life. Our clients are talking more and more about investment outcomes, liability-driven defined contribution (DC) design and seeking clarity on how asset allocation can be linked directly to a destination. A really important step has been taken with less pot-of-gold thinking to the retirement date and more formal framing around the sustainability of retirement income. There is still much to be done, we need to move from “either-or-thinking” conversations in DC design (such as annuity or account based pension) to a “both-and” approach. Roll on 2016!

Mike Hall, Chief Executive, The Stanley Gibbons Group plc

2015 was a year of transition for the Stanley Gibbons Group. We focussed on putting in place the right structure and team to support the execution of our strategy. This was the year we launched our online collectibles marketplace to provide a professional and trusted online service to the collecting community, an area of growth we see for many years ahead. At the same time, the integration of recent acquisitions have ensured we have the internal knowledge and expertise we need to deliver on our aims of creating a global auction house supported by a professional online auction platform. Whilst short-term trading took a hit during this period of change, sometimes a business needs to regroup and plan its next steps to secure growth over a longer term horizon. 

Bill Prew, Chief Executive Officer, Indos Financial

2015 has, for many in the alternative funds industry, been a year of respite from the onslaught of increased regulation in the aftermath of the financial crisis. Firms have bedded down changes implemented in 2014 following the introduction of the Alternative Investment Fund Managers Directive (AIFMD), and there is a period of relative calm on ahead of UCITS V and MiFID II coming into force in 2016/17. At INDOS Financial, we have seen increasing demand for independent AIFMD depositary services as an alternative to depositaries that are affiliated to the fund administrator, and a growing level of interest being shown in the role of depositary by investors, both trends we expect to continue into 2016.

Manish Chande, Senior Partner, Clearbell Capital LLP

2015 was a successfully busy year for the Clearbell team. We experienced increased appetite coming from the likes of Australia, South Africa and mainland Europe who were looking to funds like us to invest on their behalf. As a small and agile investment manager, we are flexible and can offer our investors varied opportunities in the UK. London and the South-East continued to perform most strongly in terms of yield compression and rental growth. Our acquisitions programme continued with several sizeable deals, such as the GBP153 million mixed use Amber portfolio, providing a welcome challenge for our specialised asset management skills. Along with strong capital value growth performance in offices and industrials, rents also contributed strongly to total returns. We experienced stronger tenant demand in office and industrial assets during the year. Logistics and offices were a key regional focus, but selected retail was also included as this sector offered strong growth once more. One trend that we observed throughout the year was the rise in investment activity in fringe-London locations such as Gatwick or the Thames Valley, as businesses moved out of the centre of London, and “the ripple effect” took place. We moved to capitalise on this trend and made acquisitions in Gatwick and Bracknell as part of our Chalk South-East Office Portfolio and an office building near Hanger Lane, West London serving as examples. Our ethos throughout the year was to look past the norm and to pick up on lesser known trends that would have a high potential for growth.

Hugh Hendry, Founder & CIO, Eclectica Asset Management

2015 has been a year characterised by worried capital markets. In markets, anxiety can be useful, especially if you become anxious before others. It is ironic that we are perhaps best known for advising “that you panic”. Today, however, we would advise that you don’t panic! Today’s markets seem to hoard innately pessimistic desires and that therein lies the opportunity. For markets do not crash when we are collectively so worried; it is like Hyman Minsky’s adage that stability destabilises, except that today the reverse is more apt. Through quantitative easing and the zero lower bound of policy rates, the authorities have paradoxically created a more paranoid and yet safer market. 

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