CEO blog: April 2019 notes
By Jack Inglis, CEO
Published: 26 April 2019
Q1 has been welcomed as the best start to the year for hedge funds since 2006. No doubt there will be some who complain that their performance lags that of stock market indices but as we have always said, that is the wrong comparison. I am more confident than ever that investors recognise the risk-reducing diversification benefits that hedge funds provide in public markets. Just consider the following two findings from recent Preqin investor surveys: 59% of investors feel we have reached the top of the equity cycle and 79% intend to maintain or raise their allocations to hedge funds in 2019. Coming off the back of an admittedly disappointing year of performance in 2018 I think that is a very positive statement that investors are making.
I have not been proud of my carbon footprint over the past few months as I have travelled extensively to AIMA events and member meetings. One of the big topics at almost every event is how hedge funds can integrate ESG into their investment process, so it makes my flight travel sit less easily with me and especially at a time when climate protestors are superglueing themselves to London streets to get the government to take notice. Sustainable investing is only going to grow in importance and so we are publishing (in collaboration with Simmons & Simmons) a Responsible Investment Primer for the hedge fund industry. In my view hedge funds are the perfect vehicle to express ESG views through the ability to short stocks in companies not felt to be up to standard. They can thus be much more active than traditional managers where screening can mean just omitting certain stocks from the portfolio
On short selling, there has been renewed media coverage in recent weeks. Rather than covering hedging activities this has focused primarily on single short positions in specific companies or on the recent intervention by BaFin temporarily banning the short selling of German company Wirecard.
AIMA has been vocal in both cases, firstly by publishing an explanation of the true depth, breadth and function of short selling in the markets and by querying the rationale for the Wirecard ban. The ban has now been lifted and we will continue the dialogue to encourage balanced and rational responses when individual stocks are exposed or show sharp share price declines. Our comments on both these themes can be read here and here.
I was in New York for our Global Policy and Regulatory Forum (GPRF) which sought to brief around 300 delegates on the key policy themes that will impact the evolution of the industry in coming years. The forum was billed as a discussion on technology, innovation and change and I think we delved into those themes fully.
Technology stood out for me. We often refer to its part in the investment process but the discussions made clear that the industry must harness all its benefits to operational processes, compliance and reporting obligations.
As always, we assembled a good group of regulators from around the world and we spent some time debating how differing approaches have caused regulatory fragmentation. This is seen as an issue but there is a definite sense of willingness to see more harmonisation across financial centres.
Whilst in America we announced the opening of AIMA’s new office in Washington D.C. The expansion recognises that over $1tn - more than half of our manager members’ assets - are managed by firms headquartered in the U.S., and our members there will now benefit from expanded local committees, peer networks and other practical tools. Press coverage of the opening can be read here and here.
Earlier I was in Hong Kong with the 600 industry delegates attending our AIMA APAC Forum, our largest one to date and perhaps a sign of renewed confidence in the region. Certainly, investors are saying they have more interest APAC strategies (especially China related) having, for a long time, been underweight. I went on to our office in Shanghai and found brimming enthusiasm for the increased pace of reforms and initiatives to give foreign asset managers greater access to China. Following my trip I am very pleased to welcome our first Chinese Global Sponsoring Partner, Guotai Junan Securities. We have good expertise in the country and are open to any enquiries from members as to how to get more involved.
Spring has sprung and may the fair winds of Q1 continue.