GAIM Monaco: A summary

20 Jun, 2014

COOConnect attended the GAIM Conference in Monte Carlo, which was celebrating its twentieth anniversary. Here is a summary of the key points.

The growing importance of peer-to-peer (P2P) lending was discussed in depth by Lee Robinson, the founder of Altana Wealth, in a keynote speech on disruptive technologies. Robinson highlighted P2P lending was far more efficient than traditional banking. These web-based platforms connect borrowers with lenders, and unlike banks are not burdened by the internal infrastructure, heightened regulation and bureaucracy. This enables them to charge slightly lower interest rates to borrowers and share the spreads with the lenders. It also offers fund managers a diversified portfolio with consistent, monthly returns not correlated to the stock market, gold or politics. P2P lending has grown in recent years as banks increasingly curb their own lending. Figures show that Lending Club and Prosper, which comprise 98% of the US P2P lending market, issued $2.4 billion in loans in 2013, up from $871 million in 2012. P2P lending presents an enormous opportunity for fund managers, although Robinson warned that P2P businesses were somewhat mispriced. He argued the data on P2P was from 2009 onwards and a clearer picture of P2P’s value would only become apparent once the volume of loans increased and default numbers grew.

Robinson also discussed Bitcoin, the virtual currency, which he described as the biggest threat to the authority of Central Banks should it truly take off among retail consumers. However, there is a strong possibility Central Banks could regulate or even restrict and outlaw the virtual currency. The majority of delegates do question the concept of Bitcoin while some seemingly struggle to understand it. Others point out it is open to abuse and fraud, not to mention volatility.

A Chinese hard landing is looking less likely following central government intervention in the economy.  “I think the Chinese government has done just enough to prevent a hard landing. The government has eased its monetary policy and cut interest rates, so I am of the belief that there will be a soft landing,” said Gavyn Davies, chairman of Fulcrum Asset Management. There are widespread fears that China’s property market is overheating. Property investment in China accounts for approximately 13% of the country’s Gross Domestic Product (GDP), which is double the US share at the height of the bubble in 2007. Real estate construction, meanwhile, is believed to comprise 20% of GDP. Davies said this could jeopardise China’s growth and highlighted property prices remained very high in urbanised areas. 

Liquid alternatives, namely ’40 Act alternative mutual funds in the US and UCITS in Europe, were discussed. There is widespread excitement about the growth of alternative mutual funds in the US, which one panellist predicted could even rival hedge funds by assets within five years. This was questioned by others, and rightly so. While alternative mutual funds’ rate of growth is higher than that of hedge funds, its asset base is far lower. Liquid alternatives in the US are still in their infancy.  A Barclays study on liquid alternatives said they comprise just 1%, or $137 billion of the $13.2 trillion presently controlled by the entire US mutual funds industry. Hedge funds themselves account for one third of that $137 billion. One panellist highlighted UCITS growth would be driven by implementation of the EU’s Alternative Investment Fund Managers Directive (AIFMD). However, that same panellist warned a blow-up of either a UCITS or 40’ Act alternative mutual fund, should not be discounted.

A panel comprised of family offices questioned the impact regulations designed to protect investors would actually have. One family office complained the cost base for managers had increased substantially although remained sceptical as to what benefits the additional regulation would actually bring. A number of US managers expressed alarm at the impact AIFMD would have on their European marketing strategies. Several investors reported US managers informing them the GAIM Conference would be their last marketing hurrah in Europe before AIFMD’s implementation deadline of July 22, 2014. US managers shunning Europe have said they intend to rely on reverse solicitation although this concept has yet to be properly defined. Furthermore, it is highly unlikely that investors will actively contact mid-sized or growing US managers on their own accord. It might be a case that the US aversion to targeting European capital is a temporary phenomenon.

A GAIM Conference would not be complete without a discussion about the reinvention of the funds of hedge funds industry. While most market participants concede the bulk of funds of hedge funds will either liquidate or merge, a small minority will remain. Those such as PAAMCO, which have historically invested in emerging managers, are frequently cited as role models for the funds of hedge funds industry. Nonetheless, the asset class is facing enormous pressure from consultants, which charge far lower fees and are increasingly bolstering their operational due diligence teams, often through hiring from funds of hedge funds. Others question whether the recent positive performance is attributable more to the equity market rally than a wholesale reinvention of the funds of hedge funds model.

A growing number of hedge funds are adopting private equity characteristics.  “More hedge funds are investing in illiquid structures. We are seeing firms impose longer lock-ins for clients and are paying themselves performance fees only once external capital has been returned to investors,” said one panellist. Basel III capital requirements are forcing investment banks to devolve themselves of illiquid assets, prompting fund managers to start acquiring these products. Their high-yields make them particularly attractive although not all investors are convinced.

Overall, GAIM showed slightly higher attendance than in 2013, and its renewed focus on networking in a manner not too dissimilar to AlphaMetrix’s then successful model, won it much plaudits among attendees. 

gaimChinaP2P lendingBitcoinAltana WealthUCITSliquid alternativesPAAMCOprivate equityAlphaMetrix