Hedge Fund Awards 2015

Hedge Fund Awards 2015 www.acquisition-intl.com 17 Best Market Neutral Fund-of-Funds we put in on a daily basis to generate solid risk-adjusted returns for our investors. Our philosophy of creating value by compounding a small edge over time – while avoiding the periodic, debilitating losses of equity markets – is fundamental to all the funds and mandates that we run. This value of this philosophy is, in our view, well represented by the success and track record of Peak Core Hedge.” While many managers are frustrated with the general lack of market action in recent times, Djerf says the firm is very excited about the prospects for the hedge fund industry going forward. “Over five years into the expansion, with no more than a brief correction in 2011, there is complacency everywhere. We believe volatility will return to the mar- kets sooner rather than later and that volatility will mean opportunity for managers such as ourselves.” Recent reports say that Sweden is leading the way for Nordic-based hedge funds. Why is this? “That is very interesting and it is hard to say exactly what the reason might be,” says Djerf. “We know for a fact that there are excellent managers in our neighbouring countries, but it would probably be fair to say that Stockholm is the hedge fund capital of the Nordics. Perhaps it is the fact that Swedes embraced long-only investment funds as early as 30 years ago and the industry is taking its next natural step. In any case, we believe that Nordic fund managers have a strong heritage of innovation and integrity and we try to be at the forefront of that.” Djerf feels the hedge fund industry is healthy and has a lot going for it in the years to come. “Based on the current level of cyclically adjusted equity valuations and interest rates, we estimate that equities will av- erage somewhere around 5 percent nominal returns over the coming decade, probably with significant volatility, and that bond investments will generate zero or negative returns for the foreseeable future,” he says. “This means that investors will need to look for other ways to compound their capital at a reasonable rate while mitigating the risk of loss, which should be very positive for the alternatives space.” However, he is also clear about what he believes to challenges for the industry. “For example, low market returns are likely to keep increas- ing focus on management fees and, more importantly, what the inves- tors actually get for their money. In a low return environment, can you really afford paying several percent per year to a manager if they do not enhance risk-adjusted returns versus a passive portfolio? Pressure on fees combined with ever rising costs for operations and compliance will impact small and emerging managers the most. We do not believe that a concentrated industry with a few very large players would be a favourable development for anyone. “On the flipside of the discussions on fees, institutional investors are currently being bombarded with proposals for purportedly cheap “smart” or “alternative” solutions – most of which are neither smart nor alternative, in our view. These products are often based on faulty research with the primary purpose of creating the illusion of alpha where there is none. “The bottom line, in our minds, is that managers will need work hard- er in order to earn their keep and that investors will need to choose wisely to get value for their money.” n

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