Swiss love affair with hedge funds firmly over, says expert
Speaking at the Hedge Fund Start-up Forum 2012 in London, Jerome Lussan, CEO at Laven Partners, said Swiss capital allocations have lagged substantially, adding the industry has yet to recover from Madoff and its heavy exposures to equity hedge funds.
“The majority of Swiss investors are local private banks and they are currently focused on long-only managers and private equity and not hedge funds,” said Lussan. “A lot of Swiss investors were slow to improve internal standards after the crisis especially in 2009 and 2010 when equity markets recovered. For many, operational due diligence in Switzerland is still behind the curve and the Swiss more generally have not adapted to changes in global regulation as quickly as they could have. A lot of investors are therefore shying away from hedge funds,” he added.
Others, however, believe the situation is not just confined to Switzerland but Europe more generally. “The Swiss investor base is not dead despite Madoff. If we look at European investors, particularly the pension plans, many are hesitant to invest in hedge funds. Regulators, particularly in The Netherlands, have discouraged pension plans from allocating to hedge funds due to the bad PR and blow ups the industry has seen, as well as the higher institutional investment skills that regulators expect (of hedge funds),” commented Jeroen Tielman, CEO at ImQubator (IMQ), the €250 million Amsterdam-based seeding platform backed by the Dutch pension plan APG.
It is not only Swiss investors who have struggled but so have their managers. A KPMG report carried out in conjunction with AIMA revealed 56% of Swiss managers experienced a decline in capital inflows.
However, the news emanating from Switzerland is not all bad. FINMA recently announced it would tone down its proposed regulation on hedge funds, which some managers had complained would disproportionately impact smaller funds. According to reports, managers with less than SFR 100 million could be exempted from registering with FINMA.
Such was the anxiety about the original proposals that managers openly talked of moving to landlocked Liechtenstein. Lussan believed this would not be an ideal solution for asset managers. “It is a complex jurisdiction and some compliance-savvy investors might question managers if they moved to Liechtenstein. This may have a negative impact on raising assets at an already very difficult time for capital raising,” he said.
The same KPMG report also said 77% managers reported a surge in capital inflows from the Middle East, followed by Asia-Pacific (69%), North America (68%) and the European Union (53%). However, the EU results are skewed because the majority of allocations in the survey were derived from the UK and Nordics.
Asia-Pacific is also developing as a prolific investor centre, according to panelists although experts located in the region stress the investors remain unsophisticated and suspicious of hedge funds. “We are seeing a lot more interest from Asian investors, particularly South Korean institutions. A lot of these Asian institutions are increasing their exposures to hedge funds, particularly emerging managers,” countered Tielman. Panelists also generally agreed the US remained the biggest source of hedge fund capital.