Elisa Trovato reports on the investment talent in emerging boutiques houses and how private banking fund selectors are increasingly thinking small

PWM’s European Fund Series pays a second visit to Madrid to analyse the recent upsurge in Spain’s hedge fund industry.

Too many back offices operate a hotch-potch of manual and automated processes resulting in high settlement costs, explains Ted Wilson

In order to further its presence in the high-net-worth arena, SEI has opted to woo partners and regions in various states of upheaval. Yuri Bender reports on the logic behind this strategy

Organic growth or acquisitions? Being an early bird or offering strong products? A developing market or an environment open to new solutions? What makes a successful transition into a new market continues to be a bone of contention. Elisa Trovato weighs up the options

A continued upward trend?

In the face of the recent market correction in developed markets, investors may well be considering tempering their attitude towards risk and diversifying away from holding investments at the higher end of the risk spectrum. But should we be so hasty? If we stick with a range of equities from different geographies and sectors are there still opportunities to be found which may deliver upside potential?

As we all know, emerging markets have delivered very attractive returns in the last few years. The MSCI Emerging Markets Free (EMF) Index returned over 30 per cent in both 2005 and 2006, compared to 10 and 20 per cent respectively for the MSCI World¹. Do the prospects for 2007 look as good?

With returns falling and correlations to equities rising, the knives are out for hedge funds. But, as Elisa Trovato reports, profit can still be derived through consideration of manager investment style and performance

Asset growth by multi-managers in recent years is testimony to their ability to create optimal portfolios of alpha and beta and capture the best of traditional and alternative investment managers, writes Christian Elsmark

Hedge funds, which provide both portfolio diversification as well as superior risk-adjusted performance, are becoming increasingly popular, making them one of the fastest growing areas of investment management. Carl Dunning-Gribble explains

Turmoil in parts of the mortgage market are threatening to upset the whole property applecart and hence fund managers are gearing up for possible recession, says Simon Hildrey

“During the past month, our balanced portfolio benefited from the global market’s recovery. Several positions taken on European and Asian equities, as well as corporate/emerging high yield bonds, contributed positively to performance. This was due to the decline in risk aversion which resulted from the rebound. Because of the recent sell-off on government bonds, we increased our fixed income exposure by adding more PAM Bonds Euro holdings, our core strategy for the eurozone. We also reduced equity exposure in emerging markets and euroland in order to take profits. Our increased exposure to convertibles should protect us from possible market corrections.”

“The latest changes to our portfolio moved the spotlight to Europe, where the confidence in the traditional markets seems to have been restored. Our critical disinvestments in the Japanese and other Asian markets were due to their loss of attraction, caused by high volatility and, furthermore, possible market restrictions in China. These funds, amounting to 13.5 per cent of the total capital in use, were transferred to Europe, where, in order to avert further risks and maintain a stable portfolio, most were put into European fixed income strategies.”

“Our portfolio benefited with its bias to equities which saw the higher beta names perform well. Volatility in equity markets is here to stay and the prudent strategy is to pick managers with the flexibility to protect investors and the skill set to deliver absolute return in a more trying market environment. With this in mind, we replace Thames River Global Emerging Markets with the more total return styled JPM Emerging Markets Alpha Plus. Within the bond element of the portfolio we replace Mellon UG Global Bond fund with M&G; European Leveraged Loans Fund.”

“Global equities recovered in March some of the losses incurred at the end of February. Our idea on the market valuation is unchanged. We continue to believe that equity valuations are appropriate. Therefore, during the month of March we didn’t change our portfolio.”

“We used the market volatility in March to reduce fixed income and increase equities and alternatives. The allocation is now 40 per cent equities, 40 per cent alternatives (hedge, property, convertibles) and 20 per cent fixed income. On the equity side, we added the JPM Emerging Market Alpha Plus Fund, which provides exposure to emerging markets, but the manager will use the full flexibility of the Ucits III powers to hedge market risk and can take exposure as low as 25 per cent with various derivative instruments. We also allocated money to property and used the IdB Real Estate Equity Fund, which is the first property hedge fund with a three-year track record.”

“Not much has changed in our balanced portfolio: the balance between fixed income, hedge funds and equity remains in favour of equities. The number of fixed income funds has fallen to four, mostly by focusing on the most nimble ones. On the equity side, the focus remains on Europe, with some diversification in the US (12.5 per cent) and China (1.5 per cent). Going forward, the portfolio should remain pretty unchanged, except if earnings growth really surprise on the downside; but the probability of it appears somewhat tiny, if the slowing of the global economy remains under control.”

“In our February review, we had highlighted the probability of a correction in equity markets. After the quick sell-off, global markets are close to their 2007 highs. We maintain a positive strategic view on equities based on reasonable valuations, a supportive environment and a still positive trend. We nevertheless see an increased nervousness in investor sentiment, who tend to react more to recent macro-economic news. We are therefore more comfortable with an equity position focusing on the quality of corporate earnings. This should be supportive in the case of decelerating earnings. We also continue to prefer large caps to small caps.”

“Increasing risk aversion and unclear signals from macro data, have made us more cautious. Hence we have maintained adequate level of equity risk in the portfolio in spite of volatile markets. On the other hand, we have reduced the beta and the number of themes and sectors within the portfolio. On the bond side, we see few opportunities in traditional investments. Therefore, we still have a very diversified portfolio with total return bond funds, convertible funds and volatility funds. In general, we have been building a little less risk into the portfolio while remaining moderately optimistic.”

“It seems likely that the current moderation in global growth is a mid-cycle slowdown, not the start of a major downturn. The oil price is unpredictable, but should remain below last summer’s levels, thus relieving some inflationary pressure. Once the current doubts over growth have been resolved, we expect further equity gains as corporate profits are still increasing, dividend growth is strong and interest rates seem unlikely to rise materially. Bonds appear fair value but slower economic growth could lead to poorer performance from corporate bonds, where the payment for the extra risk is unusually low.”

Each month in PWM, nine top European asset allocators reveal how they would spend E100,000 in a fund supermarket for a fairly conservative client with a balanced strategy

European regulators may be about to lift restrictions on access to hedge funds, thereby opening the doors to retail investors, writes Martin Steward

It is becoming far too costly for wealth managers and private banks to be able to keep up with the technology necessary to carry out their business, so many are looking to third-party providers. How can they ensure the solutions are tailored to their individual needs? Alison Ebbage reports

Professional investors are demanding more customised information at the portfolio level, as well as tailored customer statements and real-time data. Alison Ebbage reports on how Bisys Fund Services is meeting this need