Investment Funds

Hedge fund inflows reach $20bn

BY Richard Summerfield

Following five consecutive quarters of net outflows, Q1 2017 saw hedge funds attract net capital inflows of $19.7bn, according to a new report from Preqin. This pushed total assets held by hedge funds up 3.2 percent, and took assets under management (AUM)  to a record $3.35 trillion.

Further, all leading hedge fund strategies experienced a percentage increase in total assets during Q1. Further, macro strategies funds attracted $11.1bn of net inflows to expand beyond $1 trillion in AUM for the first time.

“Five successive quarters of net outflows have been reversed in Q1 2017, as the industry recorded the largest quarterly influx of capital since Q2 2015. Along with the continued run of positive returns being made by most leading strategies, this has helped propel the industry to a record size,” said Amy Bensted, head of hedge fund products for Preqin

She continued:  “2016 was undeniably a difficult year for the hedge fund industry, with net outflows reflecting a reduced appetite for the asset class from institutions following a sustained period of low returns to investors since 2014. However, following an extended run of improved performance since March 2016 – the 12-month return of hedge funds is 10.67 percent – investor sentiment seems to be improving in 2017, which is reflected by inflows over the start of the year.”

North America-based hedge fund managers attracted the greatest amount of capital over Q1 2017, with net inflows of $19.9bn. Europe was the only region to lose assets over Q1 with net outflows of $8.5bn. Asia-Pacific had inflows of $2.2bn

Q1 was a successful period for all fund sizes, which were able to attract new capital . Fifty-three percent of funds between $500m and $999m saw inflows, however smaller funds were also successful. Forty-seven percent of funds with less than $100m saw inflows, while just 36 percent of funds endured outflows.

Forty-six percent of outflows in 2016 were from equity strategies, a trend that continued in Q1 2017 due to $10bn worth of investor redemptions.

Report: Q1 2017 Hedge fund asset flows

Institutional funds hit Tesco with £100m damages claim

BY Fraser Tennant

In a move set to send further shockwaves through the financial world, more than 125 institutional funds have filed a £100m claim for damages against Tesco PLC over alleged breaches of the Financial Services & Markets Act.

The aim of the legal action is to prove that Tesco made a series of misleading statements to the stock market – comments which (it is alleged) omitted pertinent information and resulted in investors making investment decisions based on erroneous data.

“The misstatement of profits leading to a dramatic collapse in the Tesco share price caused substantial damage to many shareholders who manage money for thousands of investors,” said Jeremy Marshall, chief investment officer at Bentham Europe, the litigation funder coordinating the claim for damages. “Investors have a right to rely on statements made by companies to ensure that they correctly allocate capital.”

 In October 2014, Tesco admitted to overstating its profits by £263m. Following the announcement, the retail giant posted a 92 percent fall in interim profits.

“Tesco has misstated its accounts, and in particular its treatment of payments from suppliers, to give the appearance of static trading margins,” said Sean Upson, a partner at Stewarts Law, which is leading the case against Tesco. “The reality was that those margins were falling.  Institutional investors were therefore misled when making investment decisions in respect of Tesco. This is precisely the type of wrongdoing which the Financial Services and Markets Act was designed to redress and therefore to prevent”.

Last month, the UK’s Serious Fraud Office charged three former Tesco executives – Christopher Bush, at one time Tesco’s UK managing director; Carl Rogberg, a former UK finance director; and John Scouler, who used to be Tesco’s UK commercial director for food – over the scandal, alleging that they acted dishonestly by giving false accounts of the commercial income earned by Tesco Stores as well as its financial position.

The men are scheduled to stand trial at Southwark Crown Court in September 2017. 

Jeremy Marshall concluded: “The (damages) claim will assert that Tesco’s misstatements are in clear breach of its obligations under the Financial Services & Markets Act and investors must be compensated.”

News: Institutional funds file 100 million pounds damages claim against Tesco

Global AUM set to soar - PwC

BY Richard Summerfield

Global assets under management are expected to climb to around $102 trillion by 2020 according to a new report from PwC.

The report – Asset Management 2020 and beyond: Transforming your business for a new global tax world – notes that the boom in AUM is due to be caused by significant changes to global tax structures in the coming years. Furthermore, global tax functions, according to PwC, will be critical in determining those players in the market who will be best positioned to win a greater share of business over the next five years.

"In-house asset management tax teams will need to evolve to deal with perpetual audits and to engage with tax authorities on a frequent basis to influence policy and help guide the implementation of tax rules," PwC's William Taggart, Global Tax Leader, Asset Management said. "Asset managers will need to ensure highly-skilled tax people are brought into the heart of the business. The tone needs to be set at the top. The tax function is critical to the entire operation and senior management will need to make sure this is well understood," Mr Taggart added.

Asset managers, according to PwC will play a considerably different and significant role in investment businesses moving forward, this increased emphasis on asset managers will likely be caused by the retreat of banks and insurers from the investing space. Accordingly, PwC believe that a “new breed of global mega-managers will attract huge focus from tax authorities, which will have specialist teams with the capabilities to carry out much more detailed enquiries than in the past and the powers to request real-time investor-related information.”

Equally, tax transparency will be a key consideration by 2020 given that both the Common Reporting Standard (CRS) and global tax reporting will have become a reality.

By 2020, tax authorities would have specialist teams with the capabilities to carry out much more detailed enquiries than in the past, and the powers to request real-time investor-related information. To that end, in-house asset management tax teams will be required to evolve to deal with an expanded auditing program, they will also have to engage more regularly with tax authorities in order to influence policy.

Report: Asset Management 2020 and beyond: Transforming your business for a new global tax world

Banks in latest $2bn FOREX settlement

BY Richard Summerfield

Nine major world banks have agreed to pay a $2bn settlement to conclude a class action brought in a New York court over the recent foreign exchange rigging (FOREX) scandal.

For the banks involved, the ramifications of rigging the market in their favour continue to mount up, with fines already exceeding the $10bn mark. However, almost as harmful as the fines and settlements has been the damaging effect of the scandal on the reputations of the banks involved.

The firms involved in the FOREX fixing conspiracy, including HSBC, Barclays, BNP Paribas, Bank of America, JP Morgan, Citibank, Goldman Sachs, RBS and UBS, have been pilloried, and heavily sanctioned in recent years for their roles in the scheme. As a result of the FOREX controversy – amid other notable financial scandals – confidence in the wider financial services sector appears to be almost at rock bottom.

In May, five of the banks - Barclays, Citicorp, JPMorgan Chase, Royal Bank of Scotland and UBS - pleaded guilty to felony charges relating to rigging foreign exchange rates. In 2014, the Financial Conduct Authority in the UK fined four of the five firms a total of £1.1bn. The fifth bank, Barclays, is still under investigation.

According to Michael D. Hausfeld, chairman of Hausfeld, a global claims firm acting on behalf of US investors, the most recent settlements are a key victory for those wronged investors. “As a result of lengthy, hard-fought negotiations, we have obtained historic recoveries on behalf of US investors,” wrote Mr Hausfeld. “Apart from the monetary component, each defendant has agreed to provide substantial cooperation, which will assist investors in their continued litigation against the non-settling defendants. While the recoveries here are tremendous, they are just the beginning. Investors around the world should take note of the significant recoveries secured in the United States and recognise that these settlements cover a fraction of the world’s largest financial market," he added.

Furthermore, as part of the settlement, the rebuked firms have agreed to help investors continue their legal action against a further 12 banks - Credit Suisse Group AG, Credit Suisse AG, Credit Suisse Securities, Deutsche Bank AG, Deutsche Bank Securities Inc., Morgan Stanley, Morgan Stanley and Co, Morgan Stanley and Co. International, Bank of Tokyo-Mitsubishi, RBC Capital Markets, Société Générale, and Standard Chartered.

Undoubtedly, the increase in fines and settlements reflects the increasing regulatory scrutiny banking groups have found themselves subject to in recent years. For those targeted banks, the enforcement actions – and settlements - will likely continue for some time.

News: Currency rigging lawsuit settlements rise past $2bn - lawyer

Analysing the trillion-dollar alternative assets arena

BY Fraser Tennant

A comprehensive analysis of the alternative assets industry, including an examination of performance, routes to market and consultant recommendations, is to be found within the pages of a new report by data and intelligence provider Preqin.

Aimed exclusively at institutional investors, the ‘2015 Preqin Investor Network Global Alternatives Report’ features a wide range of topics underpinned by the latest alternatives data and expert analysis.

“The very term ‘alternative assets’ is questionable today," states Mark O’Hare, founder and CEO of Preqin. “With AUM of $7 trillion worldwide and projected to reach $12 trillion by 2020, alternatives have become core for investors.”

The report contains in-depth analysis of: (i) the evolution of alternative assets and the importance of alternatives in investors' portfolios; (ii) methods of accessing alternatives, including separate accounts, co-investments, direct investments, secondaries and funds of funds; (iii) investment consultant recommendations for the year ahead; (iv) investor fund searches, including strategic and geographic preferences; (v) performance across alternative assets; (vi) fund terms and alignment of interests; and (vii) investor attitudes toward alternatives and plans for 2015.

The reasons behind the upsurge in alternatives as a core investment are simple and powerful, claims Mr O’Hare. He says: “Private equity-style investments have demonstrably delivered superior returns to investors over the long term; and hedge fund investments occupy an attractive position on the risk-return frontier (even if the headline returns have disappointed recently).

“Add in infrastructure, private debt, real estate and natural resources opportunities – all with their distinct growth dynamics – and you have a fundamental trend of growth”, he believes.

Elsewhere in the report, Preqin analysts highlight a notable shift in the proportion of investors targeting unlisted infrastructure funds in favour of direct investments in assets. As of December 2014, 65 percent now target funds and 56 percent target direct investments.

Additionally, the report reveals that hedge funds fared worst when examining overall investor sentiment: 35 percent felt that their hedge fund investments fell short of expectations throughout 2014. In terms of private equity, Preqin found that 50 percent of investment consultants are now recommending that their clients invest more capital in small to mid-market buyout funds in 2015 compared to last year.

Mr O’Hare concludes: “As investors come to place greater reliance on alternatives to meet their investment objectives, so their need for reliable information grows. Alternatives are now simply too important to delegate solely to external advisors.”

Report: ‘2015 Preqin Investor Network Global Alternatives Report’

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