Investors still keen on 'black box' hedgies

Date: Tuesday, March 16, 2010
Author: Reuters

Investors are continuing to flock to 'black box' hedge funds and are willing to pay top-end fees in spite of the poor performance from some big-name funds recently, according to the head of investment firm AlphaMetrix.

Aleks Kins, whose firm gives investors access to these computer-driven funds whilst affording them greater visibility and control over assets, said while recent losses from 'black box' funds had affected investor sentiment, his firm was still seeing net inflows.

His comments come at a tough time for these portfolios which try to make money from following trends in global futures markets.

Man Group's (EMG.L) flagship AHL Diversified Futures fund has lost 17.2 percent over the past year. The Winton Futures fund lost 4.6 percent in 2009 -- a bumper year for the wider hedge fund industry -- although it is in positive territory this year.

"Of course it dampens it a little bit, but the net assets of the industry continue to grow," Kins said in an interview on Friday. "We've continued to see positive (net) inflows over the last several years, throughout the crisis."

His firm, which has $2.1 billion (1.4 billion pounds) in assets, saw $70-$100 million net inflows on March 1, he said.

So-called managed futures funds, or CTAs (commodity trading advisers), were the top strategy in a tough 2008 for hedge funds, thanks to gains on equities and oil, but lost 6.6 percent in trendless markets last year while the wider industry posted gains of nearly 19 percent, according to Credit Suisse/Tremont.

Kins said some wealthy individuals and funds of funds who made money in 2008 in CTAs are putting in more money because their initial investments were too small.

"We're seeing some asset inflow from groups who'd made the right decision in terms of allocation but the wrong decision in terms of allocation size," he said.

He also said that such 'black box' managers had not had to cut their lucrative charges -- usually a 2 percent management charge and 20 percent fee -- despite recent losses and the pressure on the hedge fund industry during the credit crisis.

His view backs up the opinions of some top hedge fund executives who late last year told Reuters the model of 2 percent management fees and 20 percent performance fees would survive the credit crisis.

"The credit crisis has greatly helped CTAs. They made a lot of money in 2008," said Kins. "The vast majority (of managers on our platform) are at 2 and 20. We also see 1 and 20 or zero and 30."

AlphaMetrix gives investors such as pension funds and wealthy individuals access to hedge fund managers via so-called managed accounts -- portfolios where the investor still controls the assets, rather than owning units in a fund, but often pays more for the privilege.