By: Australian Fund Monitors

Fortitude Capital which was voted Australian hedge fund manager of the year in 2008 and 2009, is set to become part of the listed Aurora Funds Ltd following a successful capital raising which will see the combined group list on the ASX on Tuesday, July 13.

Fortitude Capital's Absolute Return Trust (FCART) has one of the most risk averse profiles of all hedge funds in Australia. Since inception in February 2005 it has provided investors with an annualised return of 9.88% with a Sharpe ratio of 1.54. Over a track record in excess of five years Fortitude provided positive monthly performances 88% of the time, with its worst monthly performance being -0.73% and a maximum drawdown of -0.86%.

John Corr, Fortitude's CEO will become the Chief Investment Officer of the new group, whilst Sandringham's founder and major shareholder Steuart Roe will become Aurora's new Chairman and Managing Director. On listing on the ASX Aurora will have a market capitalisation of $19 million and is expected to provide Fortitude with the necessary structure and critical mass to significantly increase FUM, and utilise Aurora's existing strong distribution network to reach both wholesale and retail investors.

By: Australian Fund Monitors

The so called "Volcker Rule" incorporated into the US Dodd-Frank Act, designed to curb or stop banks' proprietary trading operations, is seen by many offshore hedge funds as a step in the right direction as it will cause banks to scale back their trading operations, reduce leverage and, as such, create less crowded trades for hedge funds.

The Financial Times recently reported Australian Michael Hintze, chief executive of London-based hedge fund CQS which manages $6.8 billion, welcoming the introduction of the rule, and predicting that opportunities will again favour hedge funds as highly leveraged bank prop desks withdraw from the market. Hedge fund leverage has reduced dramatically since the GFC, as has some of the leverage previously used by prop desks. Hintze estimated leverage of 15 to 20 times was normal for bank prop desks. Other sources have estimated that some banks were leveraged 40 to 50 times leading into the GFC.

However it is unlikely to be a one-way street, as the Volcker rule only applies to US banks, and many European banks such as Societe Generale, which already operate significant prop trading operations, were likely to fill the space left by their US counterparts. In addition other elements of the Dodd-Frank Act contains tighter restrictions on hedge funds which have yet to be fully factored into the market.

The House approved the Dodd-Frank financial reform bill last Wednesday, but Senate leaders postponed a vote on the bill, preventing it from reaching President Obama's desk until at least mid-July, according to The Washington Post.

The Volcker Rules curbing banks' investments in their own funds was amended; last-minute congressional negotiations aimed at winning Republican support led to a compromise that allows banks to invest up to 3% of their capital in private equity and hedge funds; Volcker was said to be disappointed with the rule's final version.
 

By: Australian Fund Monitors

Everest Financial Group, which advised last week that it was winding down its hedge fund of fund business and planned to return capital to shareholders, has announced that it has accepted an unconditional offer from One Investment Group to assume responsibility for the majority of Everest's funds under management.

One Investment Group is a Sydney based independent Australian fund management business covering asset classes including real estate, aviation, shipping, private equity, infrastructure and hedge funds which was founded by Frank Tearle and Justin Epstein.

By: Australian Fund Monitors

Everest Financial Group, the ASX listed fund of Fund manager that once had $3 billion in funds under management and advice, has announced that following a strategic review it will sell the fund management business and wind down the operations of the business.

Everest was formed in 2000 and developed a significant fund of fund business focusing on investing in offshore hedge funds on behalf of Australian high net worth clients and institutions. During their heyday Everest linked with Babcock and Brown to become Everest Babcock and Brown, but following the GFC and Babcock's demise, reverted to the more investor friendly Everest Financial Group.

The GFC caused significant issues for Everest, with both performance and liquidity suffering, and redemptions saw FUM reduce significantly as investors lost both capital and patience with the Fund of Fund model. Post GFC Everest attempted to rebuild, but was the subject of a number of corporate and legal challenges which eventually led to the Board's decision to announce a Strategic Review early in June.

Everest's CEO, Jeremy Reid, himself a major shareholder, will relinquish his role, but will act as a consultant to assist with the wind down. Meanwhile the funds management business will be sold to a "suitable qualified" but unnamed third party the board has entered into an exclusivity and implementation agreement subject to due diligence expect to be completed within the week.

By: Australian Fund Monitors

In our latest review of the industry we look at the increased volatility in May as well as giving a detailed run-down of the performance of our Model Portfolios.
As usual we include detailed analysis of performance for each strategy, industry comment and ranking tables for April 2010.

For detailed analysis of performance for each strategy, industry comment and ranking tables, please open the attached .pdf file.

By: Australian Fund Monitors

This month we include comments on two significant announcements from the Australian government, both of which have significant implications for the industry and investors alike:

1. The proposed introduction of a "Super Tax" on Australia's resources industry, which has sent shivers through investors, and
2. The proposed changes to the financial advisory and funds management industry, banning the payments of commissions and volume rebates, and enforcing fiduciary duties on advisors.

As usual we include detailed analysis of performance for each strategy, industry comment and ranking tables for March 2010.

For detailed analysis of performance for each strategy, industry comment and ranking tables, please open the attached .pdf file.

By: Australian Fund Monitors

Australian Hedge Funds produced positive returns in February, but for many managers it was a tough month.

Equity markets started the month much as January left off, with concerns over new legislation in the US, Greece’s sovereign debt issues possibly spreading elsewhere in Europe, and potential credit tightening in China all combining to prompt hedge fund managers to take risk off the table.

For detailed analysis of performance for each strategy, industry comment and ranking tables, please open the attached .pdf file.

By: Australian Fund Monitors

Questions for Astarra and AIOFP

The Astarra/Trio debacle continues although claim and counterclaim seems to be adding to the overall confusion, and no doubt distress, of their hapless investors.  This seems to be extraordinarily complicated, with more twists, turns, offshore entities and faceless people than a paperback thriller and all seemingly being played out in the media, and not as yet in the courts - although the case is due back there on March 23rd and 24th.

For those not aware, the Astarra Strategic Fund was an Australian based Fund of Funds and had approximately A$120m reportedly invested both local and offshore underlying managers.  The Strategic Fund was part of the Trio group of companies.

When concerns about the whereabouts or security of the underlying investments were raised last October, ASIC stepped in and froze all of Astarra's/Trio's funds and assets.  The Astarra Strategic Fund's manager, Shawn Richard, has assured the media he's confident the assets of the Strategic Fund will be recovered, but seems unable, or unwilling, to provide details exactly where or with which underlying managers they were invested with, or what the current status is.

It appears that the funds were allocated to a third (possibly related) party offshore who was then responsible for allocating to underlying funds.

Meanwhile it appears that the main distribution channel for the Astarra Strategic Fund was the AIOFP, (Association of Independently Owned Financial Planners) and there have been reports and allegations relating to both the relationship, and commissions or other incentives that may have existed between the Astarra and some of AIOFP's members. 

It was also reported last week in the trade press that the chairman of AIOFP's so called Independent Research Committee, Rob McGregor, was also a consultant to Astarra.

This sounds like a significant conflict of interest.

As initially observed, details are limited at this stage, but the situation certainly looks murky to say the least.  However leaving the legal details aside for the lawyers to ponder, there seem to be some basic and straight forward issues, and questions to be asked.

For a fund of funds to invest offshore in underlying single funds is not out of the ordinary as that is exactly what most of them do quite legitimately.

However, for a Fund of Fund manager to invest via a third party, and presumably not to have done his own due diligence on the underlying managers or not to know the exact and detailed knowledge of the funds is simply unforgivable.

Everyone is asking where the missing portion of the funds are, and no one really seems to know, although to be fair some has been invested in local, reputable managers to our knowledge.

But the questions we'd like to ask, and have answered are:

1.    Fund of funds charge an extra layer of fees, supposedly for researching and selecting underlying managers, and then monitoring them on behalf of their investors.  Why then can't the underlying funds be traced and valued immediately?

2.    Did Shawn Richards or any other senior person at Astarra do proper, or any, due diligence on the underlying managers with whom the funds were invested, and what ongoing reporting, checks and controls were in place?  

3.    Alternatively did they just hand the investors money over to a third or related party offshore to invest as they sought fit in various underlying managers, and if so, WHY?

4.    What was the relationship between the AIOFP, Astarra and their common consultant, Rob McGregor, and did he complete full and proper due diligence on the Astarra Strategic Fund on behalf of the AIOFP?

We'd love to get a response, even if we don't like the answers.

By: Australian Fund Monitors

Volatility returned to global markets in January, as President Obama foreshadowed controls on banks' prop trading activities and ownership of hedge funds, China issued a warning on credit growth, and Greece shook the confidence of markets with revelations of massive sovereign debt problems.

Markets around the world, including equities and commodities took note, with Australia affected to a greater degree than most. Local hedge fund managers were not immune, and AFM's index of over 200 funds managed from Australia recorded their first decline since February 2009 with an average loss of -1.43%.

For detailed analysis of performance for each strategy, industry comment and ranking tables, please open the attached .pdf file.

By: Australian Fund Monitors

Australian Fund Monitors has just released the November Absolute Return and Hedge Fund Review. Australian absolute return and hedge funds, like their overseas counterparts, enjoyed one of their best performances on record in 2009. Single funds across all strategies returned 20.81% for their investors after all fees as equity markets rebounded sharply from the selloff of 2008 and early 2009.

We also cover the performance of three Model Portfolio's which highlight some of the best funds in our database.  Each of these portfolios has a three year annualised performance of over 17% with a volatility of less than 6%, and begs the question "why is there still a reluctance to increase research, allocations and investments to managers such as these?".

For detailed analysis of performance for each strategy, industry comment and ranking tables, please open the attached .pdf file.