We live in a world of low interest rates with little sign of reversing in a meaningful way anytime soon while major equity markets move higher on a seemingly daily basis. Active fund managers around the globe struggle to produce outsized returns compared to passive benchmarks. Seeking and diversifying alpha from traditional sources has become more difficult as managers pile into the same trades and strategies. Continue reading “Are Alternatives Still Able To Provide Outsized Returns?”
(see Art. 158a to 158e CISA, Art. 144c para. 5 CISO)Why this is important
FINMA’s enforcement activities report in 2014 shows that FINMA became very active and concluded a total of 1,358 investigations. Click here to see the full report. The ending of the transition period will reveal non-compliant foreign funds.
What you need
Compliant access to Switzerland is very simple. Foreign fund managers only need to appoint a Swiss representative and a paying agent to continue to approach qualified investors in Switzerland.
Your Fundbase Team
Last year, the Swiss Financial Market Authority (FINMA) adopted a new enforcement policy setting out the general principles of its approach in sanctioning violations of supervisory laws. One of its stipulations is that enforcement should be made visible.
This recently released report on FINMA’s enforcement activities in 2014 is part of those efforts. The report shows that FINMA became very active and concluded a total of 1,358 investigations. Click here to see the full report
As a reminder, compliant access to Switzerland is very simple. Foreign fund managers only need to appoint a Swiss representative and a paying agent to continue to approach qualified investors in Switzerland.
Act now and get in touch with us!
The deadline for foreign funds to appoint a Swiss representative and paying agent is approaching. The transition period defined by the Swiss regulator (FINMA) ends this week. Foreign funds distributed to qualified investors in and from Switzerland have to appoint a Swiss representative, and a Swiss paying agent (namely, a Swiss bank) no later than February 28th 2015.
Let’s face it: AIFMD is no longer a distant set of requirements subject to ongoing negotiation. The European Commission’s detailed ‘Level 2 Regulation’ has settled the rules for compliance with this new, game-changing regulatory regime. The provision include, risk management, depositary, compensation and prudential capital requirements.
But there is a problem: The EU market is de facto closed for alternatives or only accessible via separate European investment structure or cumbersome country-by-country applications.
There is however a catch: 50% of alternative assets allocated in Europe are done outside of the EU, namely in Switzerland.
That’s how easy it is. Investors are increasing their allocation into alternatives and Switzerland is open for business. Secure yourself a seat in the front row:
The deadline for foreign funds to appoint a Swiss representative and paying agent is approaching. Only one month until the transition period is over.
Secure compliant access to Switzerland’s 2 Trillion dollar buy side market through the world’s only regulated alternatives platform. Choosing us as your representative in Switzerland means you will be able to actively market your funds directly to qualified investors with limited restrictions. From the onset, we will continually help you with all regulatory aspects as your trusted partner
Fundbase Fund Services combines unique online and offline exposure for your funds while always ensuring regulatory compliance.
+41 44 586 00 45 / firstname.lastname@example.org
Switzerland has the 3rd biggest community of qualified investors in the world. Foreign funds are looking for an easy and compliant access. Fundbase offers a unique solution to the market by combining two things:
- A specialized regulated distributor and representative in Switzerland which truly caters to the needs of alternative funds who want to access sophisticated investors in a fully compliant way. Learn fore about Fundbase Fund Services
- The first Swiss-regulated global cutting-edge platform to radically improve efficiency of discovering, assessing, and investing into alternatives. Learn more about Fundbase.com
Visit us at fundbase.com
The former concept of private placement no longer applies to foreign funds, now any offering or advertising of foreign funds in Switzerland is considered distribution!
Foreign funds distributed to qualified investors in and from Switzerland do not require registration with the FINMA (Swiss Financial Market Supervisory Authority) but have to appoint a Swiss representative, and a Swiss paying agent (namely, a Swiss bank) no later than February 28th 2015.
With our specialization in hedge funds, we can help you with all regulatory aspects. Choosing Fundbase Fund Services as your fund representative in Switzerland means you will be able to actively market your funds directly to qualified investors with limited restrictions. Besides our vast network, we operate the world’s first regulated independent web based buy side platform (Fundbase.com) for the Hedge Fund industry, with billions of qualified investors assets represented.
Visit us at fundbase.com
As savers today we collectively invest 3 tn into vehicles that mostly seem to hide on exotic Caribbean islands, can only be found through a bundle of more or less structured Excel databases, word of mouth and subscribed manually over fax with service providers that screw up at every possible step along the value chain…everybody agrees: we hate all of this…and on top the press is full of criticism on hedge fund returns!
So, who’s mad here? We all are.
But we firmly believe technology will bring the change to make hedge funds an asset class that adds the value all of our savings piles need. Here’s why…
To begin with: We don’t invest smart enough
We have a problem: We consistently miss our investment goals and have been doing this since decades. Simple facts like the one shown in the picture below illustrate this.
One million passively invested into the US stock market in 1900 would have amounted to 30 billion today! In 1900 there were about 4’000 millionaire families in the United States. Generations later, every one of those families have grown to 30 about families today. This would imply we should have about 120’000 billionaires today, but only 400 “survived”. So where are the billionaires? What went wrong? Some reasons are certainly obvious:
- Consumption and taxes
- High commissions and fees as well as transaction and business costs
- The biggest problem is ourselves: bad investment decisions
So then, can hedge funds save us from being bad investors? We think, not today …
Hedge Funds: a Loser takes it all market
One could ask if this market is really working or why not. Many markets we know are the Winner takes it all markets. This is certainly true for Internet search, Social Media, Entertainment/Music, Transportation, and even Software, Sports, and Logistics. But what about Financial markets and Hedge Funds?
Size – “Hedge funds of all sizes are now back past their pre-crisis peak. Global hedge fund assets now stand at $2.869 trillion.” (CNBC,
Concentration – “100 largest hedge funds manage 61% of industry
assets.” (COOconnect, 2013)
Flows – In 2000 10% of managers managed 75% of HF AuM, today it’s over 85%
First Conclusion – Well, the rule seems to apply also in the Hedge Fund market and the Winners (top 10% of managers) take it all (85% of AuM)
Wait a second…!
Looking at almost any study on long-term returns of hedge funds you find 2 things:
- The asset class performs better than stock markets
- Small/mid sized managers return way better than larger peers
(Source: BEACHHEAD CAPITAL MANAGEMENT – Performance of Emerging Equity Long/Short Hedge Fund Managers 2003-2012. Feb. 2013)
Over the past ten years, SMALL managers returned 7.56% per annum and outperformed BIG peers by 220 bps per annum. And small managers had a Sharpe ratio of 0.57 vs. 0.39 for larger peers over the past decade.
So, it is basically confirmed: The Losers take it all
Why we consistently invest with the Losers
- As many animals we love herding and we build on heuristic searches within our known and trusted network. And at Fundbase we often hear from investors: “we know our managers“, sounds like a trusted but extremely limited universe.
- Secondly, we are blind because most data on alternatives is of low quality and not properly maintained and there is not a central source for that kind of information. Investors are then often overloaded with unstructured, incomparable, and not assessed information.
- Last but not least, we all tend to cover our back. Risk seem too high compared to possible rewards since psychologically the transaction costs are deemed way to high.
Prediction: Technology will change the hedge fund industry forever
We see innovations and new business models in the finance industry arising almost every month. Alternatives are not an exception. Here is how it is going to play out in our eyes:
- Global peer networks will build trust among each other, engage in collaborative investing, share investment opportunities etc.
- Technology will dis-intermediate transactions and the exchange of information becomes free. Investors will only pay for what they get.
- Lastly, investors get direct access to hidden pearls and the Winners will become visible to a wide range of investors, also based on the wisdom of the crowd.
- Investing will become a matter of clicks and a seamless experience rather than a laborious and costly process with many breaks and 3rd party hick-ups.
Today we are sheep, technology will enable us to become investing wolves!
The result: Tech creates a new asset class
We predict Tech will add at least 4-5% on returns for hedge funds within the next 12-36 months. Practically risk free. So from an assumed (already healthy) annualized return of 9.3% since 2000 we can assume to end up with annualized returns of over 13%. Here is is how we think its going to add up:
(source: Eurekahedge index Jun 2000 – Oct 2014 minus assumed transaction costs of 170 bps=9.3%, Fundbase analysis)
The five ingredients are:
- Select smarter! min +220 bps from tapping small/mid cap managers
- Get a deal! +50 bps from lower fees due to (seed) deals
- Cut transaction costs! +50 bps less broker’s fee, intermediaries, due diligence
- Ask your custodian! up to +60-75 bps from reduced custody fees
- Operate smarter! +10 bps from lower data costs and HR/IT resources
This is not just dreaming, it’s coming closer to all of us. We saw this kind of innovation and disruption in many other industries (Airbnb for hospitality or Uber for transportation) but also in financial markets (Angellist for venture capital).
At Fundbase this keeps us up at night and we will not stop until we deliver to investors their well earned 5% extra.
Fundbase is a Swiss/US based technology venture executed by seasoned entrepreneurs and backed by sophisticated investors. At Fundbase we believe institutional investing into alternatives should be as easy as buying low cost ETFs. We make it happen with technology. Visit us at fundbase.com
By now all of us in the alternative industry have read multiple articles on CalPers’ exiting of Hedge Funds. I feel, as in many other examples before, this has been taken up, made a “sensation” to drive unique visitors to media sites without very many writers thinking twice about what this really means. In my eyes it’s great for the Hedge Fund industry that another “elephant” leaves the room. It can only mean things get better from here…
- The often cited fact that a large guy like Calpers cannot beat the HF index (which is just an average, remember) has many reasons, many of them routing back to the sheer size of the institution.
- Pension funds in my view due to their size, their ultimate investors and political governance are by definition poor investors in high conviction investments. Their manager picking ability is enormously impaired on day 1, regardless of their resources and/or teams etc.
- To suggest people should go long-only and or in illiquid things like PE/Real Estate, as some commentators have done, is highly dangerous and produces the next valley of tears
- But I agree in the other lesson…watch out who you pay for what…aa very limited number of managers are worth the pay in the long run, especially if you have no right to claim the pay back if the promised result has not been delivered. In fact an outrageous business model…
- This will open up a big chance for nimble, skilled investors with the right tools to reap the opportunity that is left behind by the elephants
- This new opportunity is not in front of you…and certainly doesn’t already manage billions of dollars…its emerging/mid sized managers who are still hungry, are of a new generation, highly innovative and very specialized
- To find them, assess them, invest in them we need the market to work way more efficiently, cut the bullshit out and get the smart investors back into the driving seat
- Platforms like the one we are creating (www.fundbase.com) will be leading this change.
It will be interesting to see how the market will look like in 5 years. This could finally be the time when things change radically, the timing looks about right…we bet on it!