This week I read an interview with Timothy Spangler, the US author of a book called "One Step Ahead: Private Equity and Hedge Funds After the Global Financial Crisis," in which he provided some interesting insights into the evolution of the managed funds sector, albeit with a very US centric slant and a focus on hedge funds.

To set the record straight I haven't yet read the book, (Amazon aren't that quick) but the interview covered a range of issues including the negative perception of hedge funds in the media, and thus by the general public; the lifting of restrictions in the US on advertising hedge funds to retail investors; and the difference between the asset managers who see their challenge as building assets, and those who see it as the single minded pursuit of performance.

Elsewhere the article covered the perennial debate between Long Only Benchmark Aware Investing vs. Absolute Returns. Of greater interest however was his view that hedge funds act as an effective magnet for talent, and as such their attraction to certain individuals from the long only, asset gathering side of the industry.

Maybe this struck a chord because this week Sean Webster and I had the opportunity to interview Simon Shields and Shane Fitzgerald from Monash Investors, two highly qualified and successful professionals who after 20+ years in the industry, and each at the top of their tree, took the bold step in mid-2012 of launching their own fund.

What intrigued us was why would two highly paid, award-winning, senior fund managers with excellent track records working for major institutions such as UBS, BT and Colonial First State step outside their comfort zone, both emotionally, professionally, and financially, to launch a long short start-up, and try to raise capital without the infrastructure and support provided at the big end of town?

The first response was probably predictable: They wanted to control their own destiny and make their own decisions away from their previous environments. Underlying this presumably was that as they progressed up the corporate ladder their roles became less focused on investment management, and more focused on internal corporate management.

Secondly, and equally importantly, they believed that long only management was no longer at the cutting edge of the industry, and that absolute return strategies provided greater flexibility to adjust investment styles to suit changes in the underlying market. They saw the ability to invest with true conviction, including the ability to short if necessary, and without the limitations of being fully invested in the market at all times, as being a more rewarding approach.

From a performance perspective it is early days yet for their Monash Absolute Investment Fund. After 21 months their annualised return is in excess of 26% with volatility of 7.53% and Sharpe Ratio of 2.76. Until the last three months this has been in a buoyant equity market, so the real test is yet to come. However having returned 8.32% year-to-date compared with the market's 2.09%, early indications are that their absolute return focus is holding its own.

Shields and Fitzgerald are of course not alone, and the absolute return and hedge funds space is typified by individuals leaving the comfort zone of a large corporate investment manager to strike out on their own and make a difference. Some, such as Sir Michael Hintze at CQS, and Kerr Neilson at Platinum, have gone on to not only provide excellent long-term performance, but also build significant businesses and reputations to match. Others have preferred to remain under the radar and focus less on asset gathering (frequently as a result of their specific strategy) and more on performance.

To come back to Spangler's interview, and presumably in his book when I get to read it, is that the absolute return and hedge fund industry acts as a magnet for talent. Markets may change and strategies may evolve, but it is the talent within the industry that will drive its future and success.

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

Bennelong Kardinia's Absolute Return Fund recorded a reasonable return in a flat market delivering 0.87% with the annual return 9.67%.

The Optimal Australia Absolute Trust returned 0.04% in March with an annual return of 3.30% and standard deviation of 1.89%.

Morphic's Global Opportinuties Fund returned -2.63% for March, slightly above the benchmark ACWI Index (in $A), with annual returns at 27.63%.

The Allard Investment Fund had a sound month returning 0.1% during March (Index -1.9%) and 9.69% for the previous 12 months.

Updated FUND REVIEWS released this week included:

Morphic Global Opportunities Fund, whose philosophy is that only funds with flexible investment and hedging strategies will be able to deliver acceptable, steady, real, absolute returns over the investment cycle.

FUTURE EVENTS

If you know of any upcoming hedge fund industry Events, or would like your Event listed in our calendar, please contact us.

And now for something completely different, just a week out from Easter. We're not quite sure how the Pope will react to this, or if the Church will now allow Priests to marry?

On that note, I hope you have a safe and happy weekend.

Best wishes,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy.  To celebrate the 20th anniversary of their #CBDGolf Escape! charity golf event, Cerebral Palsy Alliance are holding an online raffle. The prize will be a Toyota Yaris YR Hatch 3 Door, plus many amazing prizes inside the car - A total prize value of $22,000...See more

For more information visit www.cpresearch.org.au or contact me by email.

MORPHIC GLOBAL OPPORTUNITIES FUND

ATTACHED FILESMorphic Global Opportunities AFM Monthly Review February 2014 (pdf format)

April fools' day came and went this week with little surprise, but luckily for the recently departed Assistant Treasurer, Arthur Sinodinos his appearance at the Independent Commission Against Corruption (ICAC) didn't occur until two days after. The media and others would have had a field day with the headlines covering the story.

For those not familiar with the details, Sinodinos received $200,000 a year to act as chairman of a company seeking a NSW state government contract to deliver water infrastructure to a growing region of Sydney's north west. As such his role took an annual total of 45 hours, or nearly $4,500 on an hourly basis.

Not a bad gig if you can get it, particularly as it only required him to be, in his words "a door opener", but it appears one without a very clear memory based on the number of times he couldn't remember or recall many details to assist the Commission. Adding to his memory lapse was that he forgot to mention to the NSW Premier, presumably one of the doors he opened, that if successful he was personally in line to pick up $20 million for his troubles.

Regular readers of "Hedge Clippings" might wonder if this is relevant to our weekly update on managed funds, but given that as Assistant Treasurer Sinodinos was until very recently the champion of changing the FoFA regulations, we think it is. What is relevant that he was trying to soften the FoFA legislation around conflicted remuneration (otherwise known as commissions) not strengthen them. If anyone was better placed, or more personally involved, to understand conflicts of interest I'd like to know who.

Having said there was a significant amount of misinformation and fear mongering in the campaign against the FoFA changes, but that in itself was caused by the lack of clarity and transparency on what the REAL effects would be.  And as the previously mentioned Sinodinos would now realise, transparency is essential if one is to avoid confusion, or misinterpretation. Unless of course clarity and transparency are not in your best interests.

This week's "and now for something completely different" is probably topical.

And now to matters financial. Equity markets both here and in the US saw very narrow trading ranges in March, with the S&P500 trading in a 49.3 point range even as it topped new highs. By comparison January and February ranges were 111.18 and 130 respectively. Meanwhile the ASX200 equivalent was 173 points in March, compared with 224 points in January, and 409 points in February. Volatility has collapsed accordingly, and given the concerns over the credit situation in China, military activity in Eastern Europe, and the growing realisation that interest rates can only rise, albeit possibly not for another 12 months.

Against this backdrop the ASX200 Accumulation index rose 0.29% in March to take the YTD return to just 2.08%. Early indication of March fund returns are significantly positive with the Monash Investment Fund the standout to date with an estimated +4.6%. 

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

The Pengana Australian Equities Fund recorded a 1.44% return during February 2014 and 7.30% for the preceding 12 months with a volatility of 6.41%.

The Monash Absolute Investment Fund returned a solid 4.6% during March (Index 0.20%) and 27.72% (Index 12.0%) over the last 12 months.

Updated FUND REVIEWS released this week included:

AFM's updated Fund Review for the Optimal Australia Absolute Trust  has been released. The fund is characterised by very low risk with an annualised standard deviation 3.55% (Index 15.07%) and a Sharpe Ratio since inception of 1.76.

Insync's Global Titans Fund Review shows the Fund delivering an annualised return of 11.33% and annualised standard deviation of 7.59% (since inception in October 2009) with sound risk-reward statistics.

Aurora Fortitude Absolute Return Fund - The Fund is characterised by steady returns and very low risk. Since inception (March 2005) the Fund has returned 8.12% pa.

FUTURE EVENTS

If you know of any upcoming hedge fund industry Events, or would like your Event listed in our calendar, please contact us.

And now for something completely different this week, although this clip is about a golf situation it presents a real-life dilemma regarding ethics. The real question is: What would the aforementioned Sinodinos do in this situation?

On that note, I hope you have a safe and happy weekend.

Best wishes,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy.  To celebrate the 20th anniversary of their #CBDGolf Escape! charity golf event, Cerebral Palsy Alliance are holding an online raffle. The prize will be a Toyota Yaris YR Hatch 3 Door, plus many amazing prizes inside the car - A total prize value of $22,000...See more

For more information visit www.cpresearch.org.au or contact me by email.