Exploring the Dutch hedge fund industry: COOConnect in Amsterdam
My fly-over visit to Amsterdam, with the stated objective of better understanding the Dutch hedge fund and institutional investor landscape, discovered an industry unsure of its future. The country’s hedge funds are intriguing and diverse, but many have yet to attract institutional investment at home let alone from abroad.
The Dutch pension fund industry – which is running roughly €900 billion – is notoriously reluctant to invest in alternatives. This is less true of the household names – PMT, PGGM and APG, the last of which has its own hedge fund seeding platform called ImQubator (IMQ) – but, like almost any pension funds with dedicated alternatives teams, even they prefer to invest in blue-chip managers. That means they tend to miss domestic hedge funds.
One Dutch hedge fund manager highlighted concentration limits and fears about reputational risk as the main factors behind the aversion of local pension funds to local hedge funds. An allocator said it was not uncommon for the country’s regulators to grill pension plans about their hedge fund investments from time to time too.
Other domestic investors, such as high net worth individuals (HNWIs) and family offices - the classic early stage hedge fund investors in the United States and the United Kingdom - have by and large preferred to stick to long-only managers. “Dutch investors’ knowledge on hedge funds and private equity is limited and superficial,” says one hedge fund manager in Amsterdam.
A fund of hedge funds agrees, adding the number of managers ripe for hedge fund investing in the Netherlands is notoriously low, and stressing for good measure that investors do not have a positive impression of hedge funds. “The lack of education by hedge funds about what they do and who they are is a factor in the lack of uptake,” he says.
It is for this reason that Dutch hedge funds seem to be in a state of gentle decline. Assets under management (AuM) fell by 2.9 per cent during the third quarter of 2013. Total AuM managed in the Netherlands now stands at €21.5 billion, according to De Nederlandsche Bank, the central bank.
The Alternative Investment Fund Managers Directive (AIFMD) is likely to lead to even fewer Dutch investments in overseas hedge funds. Concerns, particularly in the United States and Asia, about what constitutes reverse solicitation under AIFMD is a major inhibitor. Non –European investors also sense European compliance costs are set to skyrocket. The absence of European investors actually putting money into hedge funds is another disincentive to active marketing in Europe.
However, Kempen, the $900 million fund of hedge funds, has identified an opportunity. “A lot of US hedge funds have said they might simply ignore Europe because of AIFMD’s requirements,” says Michiel Meeuwissen, a senior portfolio manager at the Amsterdam-based fund of hedge funds. “But if funds of hedge funds give underlying clients access to these difficult-to-access managers, this could restore some European investor interest in funds of hedge funds.”
Others agree. “AIFMD does create a lot of opportunities,” says Mark Baak, director at Privium Fund Management, an umbrella platform in Amsterdam. “Funds of funds - by giving investors unable to access US or non-EU managers a conduit to those top hedge funds - could be an opportunity.” Nonetheless, some cynics might argue this is strikingly similar to funds of hedge funds’ pre-crisis marketing spiel whereby they promised investors exposure to hard to access managers.