We can’t help feeling that amongst the great fee debate sparked by the Cooper Review, some people are missing if not “the” point, at least one important factor: PERFORMANCE.

AFM’s E5 Model Portfolio for instance consists of five equity based funds which charge management fees of up to 2% and a performance fee (above a hurdle)of 20%. The net annualised performance, after fees, of these managers over the past 45 months has been close to +15% whilst the ASX has fallen at an annualised rate of over -5%.

Of course high fees can detract from investors’ returns, but fees should be considered as part of the overall return. It is all well and good to compare the effect of different fees on identical returns, without considering the performance of the underlying investment.

By all means debate, compare and consider fees, but don’t forget the effect of performance. There seems little point in selecting an investment with poor or negative returns just to save on fees.

A global survey of 50 institutions by research house Preqin has found significant shifts away from investing through fund of funds at the same time as their overall appetite for the hedge fund sector is increasing. 64% of the respondents made their first hedge fund investment though a fund of fund, but only 36% of those continue to do so.

The GFC and 2008 were obviously a turning points for the industry as the survey showed that 80% of respondents that have moved away from fund of funds did so in 2008 or after, presumably as a result of liquidity, performance or transparency.

Other key findings included:

• 64% of respondents entered the asset class through fund of funds investments, but only 36% of these continue to invest solely through funds of hedge funds.
• 36% of respondents that currently invest solely in funds of hedge funds plan to move towards direct hedge funds in the future.
• 60% of respondents cited the extra layer of fees as the main reason they moved away from funds of hedge funds.
• Greater control over their investments (54%) and more in-house resources (13%) were other reasons cited for the move into direct investment.
• Public pension funds still invest heavily in funds of funds, with two thirds of public pension funds only investing through funds of hedge funds.
• Endowments and insurance companies are the largest investors in direct funds, with 66% and 50% respectively only investing in hedge funds directly.

ATTACHED FILESPreqin fund of fund survey (pdf format)

There will be no doubt be more to come from the Trio Capital saga and the liquidator's public examination of Shawn Richard, but how do you tell when he's telling the truth?

A: Probably never.

No doubt an enterprising journalist will one day write a book about the real story behind Shawn Richard, the Astarra Strategic Fund and Trio Capital, but whether it will be found in the fiction or non fiction section of the library is anyone's guess.

Uncovering the truth will take some doing simply because Richard's version of events, his past, his motives and his actions seem to depend on who's asking, and how he feels on the day. Although quick to claim privilege on day one of the liquidator's questioning, Richard has yet to use the "I can't recall" response, but it is only early days yet.

For a history of the debacle, try the Sydney Morning Herald's website here

HFA Holdings has announced it will re-brand and re-position their Australian subsidiary, HFA Asset Management to “Certitude Global Investments” from August 1.

The announcement said that Certitude will increasingly offer single manager products to Australian investors, expand their target market to the institutional end of the spectrum, and provide greater simplicity and transparency in line with current investor requirements.

The company also announced that it was in the final stages of negotiating an exclusive distribution agreement with a leading European based asset manager, expected to be launched in early August.

HFA suffered, as did many fund of funds during the GFC, from redemptions and liquidity in underlying investments, and has seen FUM fall from over $10bn to the current level of A$5.7bn.

Regal Funds Management, the Sydney-based alternative equity and hedge fund manager with approximately $350 million under management has sold a 30% stake in the business to Ascalon for an undisclosed sum.

Ascalon, which is part of BT Financial Group is a specialist investor in boutique fund management firms, providing a range of services to their underlying managers, in particular marketing to Australian investors.

Regal, which was formally 100% owned by brothers Philip and Andrew King, manages a series of wholesale equity-based funds including market neutral, long/short and Asian quantitative strategies and has a six-year track record. Regal's Amazon and Tasman market neutral funds, launched in June '05 and May '07 respectively have both produced annualised returns in excess of 20% since their inception.

In our latest review of the industry we provide a round-up of hedge fund news 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 May 2010.

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

ATTACHED FILESJune absolute return and hedge fund review (pdf format)

Although the bill is yet to be signed off by President Obama, the Dodd-Frank Act is likely to change and shape the US banking and financial markets landscape for some time to come, but at over 2,300 pages it's not light reading.

As much as we'd like to claim that we have burnt the midnight oil to whittle down the legislation's essential points and then calculate the likely winners and losers, we can't.

However for an excellent summary of the Highlights from Reuters, click here, and (again courtesy of Reuters) a concise list of winners and losers.

U.K. hedge funds got a shocker Thursday when they discovered the E.U. had written them into legislation to restrict banker pay. They knew their pay practices faced curbs under a separate directive, but nothing had been set in stone, and the other proposals wouldn't take effect for at least a couple of years.

Now, they're in the E.U. net from January, though it's still unclear how the rules will actually play out in the U.K. and elsewhere. Because the E.U. has left national regulators some leeway, the U.K.'s FSA could decide much of the legislation isn't relevant to hedge fund firms and other asset managers, or at least none but the very largest... Full article (subscription required): Source

Hedge fund managers face curbs on pay after they were caught in an EU-wide clampdown on bankers bonuses. Under a deal agreed with the European Parliament, bankers will be able to receive no more than 30 per cent of any bonus immediately and in cash - which is reduced to 20 percent for larger bonuses. The remainder must be delayed and linked to long-term performance, with 50 percent paid in shares.

Bankers are relatively relaxed about the new rules, because they don't go further than restrictions already agreed with the Financial Services Authority. And the new rules do not contain restrictions on the total size of bonus payments which will mean seven-figure payments will still likely be made... Full article: Source

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.