Leading listed alternatives player Man Group – currently in the midst of acquiring rival hedge funds operator GLG in a deal that will boost assets managed by the combined entity to $63bn (€51bn) – is unusual amongst its peer group.
Much of the new money flowing into its funds has been coming from private banks’ clients rather than traditional institutions such as hedge funds.
The Swiss-based group’s head of distribution John Bennett points out that core business for Man has always come from high net worth individuals, with institutional flows only gaining strength following the acquisition of RMF in 2002. But there has been an even more important driver since the crisis.
“In terms of which provider is preferred by private clients, there is a great deal of comfort in going to houses which are a safe pair of hands,” ventures Mr Bennett, a ten-year veteran at Man, who previously worked as a client adviser in the wealth management sphere.
“Many people are going into funds for the first time and want to see an institutional infrastructure, so it is the bigger players who can come through.”
The core of Man’s offer is now through managed accounts, which the group hopes to expand through its buzzwords of transparency, liquidity and control. In fact the group’s high-profile liquidity during and immediately following the 2008 crisis – while other funds set up gates – meant many investors were using the house as a cash machine and funds under management dropped by 50 per cent.
Yet today, it is impossible to sell non-liquid hedge funds to private banks. Man gives clients a choice of 75 managers, which it hopes to eventually expand to 100. Private clients typically require a fund delivered in the Ucits format, says Mr Bennett. “This offers extra regulatory oversight, a passport into the UK for distribution and is a lot easier to talk to clients about.”
There is also a huge tax advantage for UK residents, with Ucits funds treated under capital gains rather than income tax regulations. Products currently highlighted for private clients include the internally managed AHL quantitative CTA fund (see below) and a long-short equity fund giving access to 12 managers and offering downside protection in a Ucits structure.
Despite positive rumblings, Mr Bennett believes the days of private banks having a high ‘default’ setting of 15 to 20 per cent for hedge funds in discretionary portfolios are behind us. “The hedge fund concept is now part of investor consciousness – it’s not ‘do we do it,’ but ‘how much do we allocate?’”
Yet it’s impossible to just “just chuck a blanket over the industry” and arrive at standard allocations, preferring instead for each client to be individually treated according to risk appetites and expected returns.
Equity culture
There is however a danger of over-allocation to equities – rather than hedge funds – which he detects in many private clients’ portfolios. “There is a strong equity culture, some say too strong, particularly in the UK,” senses Mr Bennett. “A 70 to 80 per cent equity allocation in a portfolio does not represent diversification.”
He sees the advent of Ucits structures as a “quantum shift” in investing. “Through Ucits, you can start to diversify portfolios in a more efficient manner,” he believes. “They are democratising the investment world. It’s like putting another club in the golf bag.”
While Man has an excellent relationship with the private banking world, there are many hedge fund groups which do not, says Dan Mannix, head of business development at partnership RWC.
This 45-strong London boutique, running $2.5bn recently made headlines by poaching a leading fixed income team from Schroders, a pillar of the UK financial establishment. Schroders, clearly impressed by RWC’s audacity, has since taken a 49 per cent stake in the boutique.
RWC originally gained exposure to the wealth management world through launching a convertible bond fund, which took advantage of a broader palate of Ucits rules for fixed income investing.
Newer funds
Today it is accommodating newer funds, such as its US absolute return long-short strategy in similar fund structures. This product raised $500m in just six months from discretionary private banking platforms. There are also teams specialising in UK equities, European equities and once derided TMT stocks.
“We take the business of client management very seriously,” says Mr Mannix, who, like the Man sales force, also saw an over-exposure to equities among wealthy individuals, although he believes this is changing slowly.
“It’s not enough to just have good performance and then expect wealth managers to notice you and book their clients into your funds. You have to work with Goldman, Rathbones, Credit Suisse and UBS. They all need high levels of transparency, liquidity and service,” he adds.
