Australia's fund management industry potentially stands to gain an influx of new investors under the government's recently announced Significant Investor Visa (SIV) program. The new Visa requires high net worth potential immigrants to invest a minimum of $5 million in a specific range of asset classes including ASIC approved managed funds which invest in Australian equities.

While the requirement that the funds specifically invest in Australian equities or other approved assets will limit some local absolute return managers, the opportunity for those that do qualify is significant. AFM understands there are a number of plans to market to the new investor/immigrant group which is expected to focus on China's high net worth demographic.

Administration of the program seems significantly simpler than many other government programs, and this will be welcomed by both the Visa holders and fund managers, particularly given the ongoing delay and lack of clarity about tax breaks for offshore investors in Australian managed funds announced following the Johnson report recommendations.

Emerging managers boosted by Volcker rule.

The ranks of Australian early-stage managers have been further boosted by a number of new funds in the past few months. Some of the new start-ups can be attributed to the ongoing implementation of the Volcker rule initially announced in January 2010 by President Obama and due to be implemented on 1 January 2013 in a crackdown on investment bank's proprietary trading and ownership of hedge funds.

While not all the new funds can be attributed to the new regulations, there are certainly some traders who have departed large global investment banks due to the new rules, including MST Capital, established by Gerard Satur (ex UBS) which has attracted over 100 million in seed capital from a local institution, and Auscap, founded by ex-Goldman prop traders Matthew Parker and Tim Carlton.

Emerging managers face a range of challenges in their early stages, as without a definable track record gaining new investors is difficult to overcome. What is apparent is that many of the new start-ups, including quantitative Asian equities manager Alpha Beta Capital founded by Andrew Barry, have established the necessary structure and processes to satisfy investors of their operational and risk management frameworks.

While gaining institutional investors in the early stages is particularly difficult, many family offices and high net worth investors understand and recognise that performance from early-stage managers is frequently significantly better than larger or more established competitors. The focus on due diligence compliance and institutional grade back-office systems has become a significant barrier to capital raising for early-stage managers, but this new breed and their focus on structure is welcome.

November returns

It's early days for returns from many managers for November, but in what has been described as a "tricky" month, most that we have seen have been positive. Politics continue to drive global headwinds, with the current challenge being negotiations of the fiscal cliff in the United States. China appears to have leveled out, while Australia's chances of avoiding a deficit seem unlikely.

Have a good week-end.

Regards,

Chris.

According to an article in the Telegraph, when Alfred Nobel bequeathed his fortune to peace prizes in 1895, he restricted investments to "safe securities" - but then, even he hadn't anticipated the latest financial crisis.

On Thursday, January 21, 2010, US President Barack Obama vowed American taxpayers would never again foot the bill for the risky activities of commercial banks. At a White House press conference, flanked by a council of high-powered economic advisers, Obama unveiled the Volcker Rule, named after the former chairman of the US Federal Reserve, Paul Volcker, who was towering over the President's right shoulder."

Banks will no longer be able to own, invest, or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit, unrelated to serving their customers," Obama said.

more here.

At UBS's Australian office, one of local head Matthew Grounds's most trusted lieutenants, Gerard Satur, who ran the Sydney dealing desk at the ripe age of 29, had assembled a team of macro traders in 2011. The unit, housed within UBS, aimed to profit from trading opportunities thrown up by the exit of US banks from prop trading. But after the Adoboli trading blow-up, UBS issued a global directive banning prop trading. Satur's fund was forced out, leading to the formation of MST Capital.

While the banks are no longer taking proprietary risks onto their own balance sheets, they can still back their former stars with seed capital. None have done so yet. With the new Basel III capital requirements, the economics hardly stack up. There are, however, other ways to support their former traders. MST is on the UBS Australia wealth management platform, so UBS financial advisers can direct their clients to invest in the fund.

MST is off to a good start. Since setting out on their own in July, the fund has returned 3.17 per cent net of fees in a soft market, and it has already secured a $100 million investment from a superannuation fund. The challenge for MST - and the other hedge funds run by former prop traders - is reproducing the goods outside of the banking system. Working inside a bank is vastly different to managing capital for third parties, which involves fund raising and client pressures, and a less fluid flow of information.

Read the entire article here.

Bill Gross who runs the world's biggest bond fund at Pacific Investment Management Co., said structural headwinds may reduce real economic growth below 2 percent in the U.S. and other developed nations.

"The biblical metaphor of seven years of fat leading to seven years of lean may be quite apropos in the current case with the observation that the developed world's growth binge has been decades in the making," Gross wrote in his monthly investment outlook posted on the Newport Beach, California-based company's website today. "We may need at least a decade for the healing."

With globalization, technological and demographic changes restricting growth, investors should seek returns from commodities such as oil and gas, U.S. inflation-protected bonds, high-quality municipal debt and non-dollar emerging market stocks, Gross said, reiterating earlier recommendations.

Read the entire article here.

SINGAPORE: Hedge fund managers said industry consolidation and increased regulatory oversight with accompanying costs are the top two challenges facing the industry in the next one to two years.

This is according to a pool of 100 hedge fund managers interviewed by accounting firm, Ernst and Young.

Read the entire article here. www.channelnewsasia.com

An Ernst and Young survey of 100 hedge fund managers has revealed industry consolidation and increasing costs related to greater regulatory oversight are the major challenges facing the industry in the next one to two years. In the year to date over 70 funds in Asia have closed despite an annualised return of 9% since 2008 in the Asian hedge fund sector. A number of funds have remained below their high water mark since 2008 and have therefore received no performance fees despite generating positive returns.

Increased risk aversion driven by concerns over the US 'Fiscal Cliff' and Eurozone debt concerns have seen asset flows slow with funds under management estimated to have fallen 30% on 2007 levels.   

Read the entire article here. www.channelnewsasia.com

Hedge funds increased bullish bets on commodities by the most since August as evidence that China is accelerating outweighed concern that U.S. lawmakers have yet to resolve an impasse over automatic spending cuts and tax rises.

Speculators and money managers increased net-long positions across 18 U.S. futures and options by 9.8 percent to 929,588 contracts in the week ended Nov. 27, the biggest gain since Aug. 21, U.S. Commodity Futures Trading Commission data show. Gold holdings reached a six-week high, and wagers on a wheat rally jumped the most since June. Cattle bets more than doubled. The Standard & Poor's GSCI Spot Index of 24 raw materials rose 1.9 percent in November, the first monthly gain since August.

The world economy is in its best shape in 18 months because of the acceleration in China, the biggest consumer of everything from cotton to copper to coal, according to the Bloomberg Global Poll of 862 investors last week. The U.S. probably will avoid the so-called fiscal cliff that the Congressional Budget Office has warned risks sending the country back into recession, even as Europe remains mired in a debt crisis, the poll showed. 

Read the entire article here.