The hedge fund market, private credit and ESG investment strategy were among the key topics of discussion at this year's AIMA Australia Annual Forum in Sydney.
A good mix of fund managers, advisors and service providers active in the alternative investment space attended the Alternative Investment Management Association (AIMA) Australia Annual Forum at Sydney's Sofitel Wentworth Hotel. Alongside Australian managers, many overseas representatives – particularly from Asia – were present.
Market volatility, reduced sentiment and increased compliance costs have made the hedge fund market a difficult one in the last couple of years. However, some optimism remains and this has seen a number of new (smaller) funds established. This was one of the points raised in the first presentation by Dr Sushil Wadhwani (Chairman and Co-Chief Executive Officer at Wadhwani Asset Management LLP). These smaller funds can still be successful, by keeping on top of market developments and applying a sustainable strategy. In his presentation Wadhwani also showed (with the help of historical data) that pre-global crisis, funds performed best while post-global crisis, the performance of funds remains at the lower end.
Private credit was a key topic discussed during a presentation and panel session. An upcoming trend among investors, private credit offers attractive, cheaper alternative financing allowing smaller groups to enter with still a good return, and it brings stability. Private credit clearly fills in a gap in the market as solvency regimes are changing in countries which drives up alternative financing possibilities. Debt fund managers are also taking advantage of this. Due to this trend, one can say there is also a new view on equity risk, because higher risk assessment would apply to security provided over underlying assets in order to obtain private credit.
Central bank activity among the G10 countries shows that interest rates have significantly lowered in the last seven years. There is a relationship between strategy returns and the trend of lower interest rates, in other words, results have been suffering. It is expected that the number of providers active in the private credit market will increase in the next three-to-five years.
ESG investment strategy
The other main topic during the AIMA Annual Forum centered on ESG investment strategy. ESG stands for Environmental, Social and Governance. The question during a panel discussion was whether this is the new norm.
A couple of industry experts (AMP Capital / BlackRock / CFM International) commented on this increasingly popular approach. It was noted that when integrated into investment analysis, ESG provides investors with long-term performance advantages. However, all panel members agreed that ESG is not something to be labelled as mainstream; because of the nature of alternative investing, not all strategies are suitable for ESG integration. Also, not all managers would apply this strategy due to cost and time required.
One of the final sessions of the day was an offshore funds update. The panel featured various industry expert advisors. It was clear from the discussion that Cayman remains the most popular jurisdiction for fund managers, as it is easy to establish and everyone is familiar with the jurisdiction, meaning that from a marketing perspective, half of the work is already done.
Cayman also has very user-friendly laws and provides the flexibility that the industry wants. After Cayman (in chronological order) comes Ireland, Luxembourg and BVI. Each panel member promoted the main advantages of the jurisdictions in which they advise.
The panel members also discussed the level of complexity when running parallel funds. Cayman proves to be the easiest and Europe the most difficult, due to additional requirements such as AIFM compliance.
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