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Is infrastructure still a good investment? |
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While it sounds like a good concept, just ask asset managers how they are finding vehicles in which to invest. Morgan Stanley and Goldman Sachs both have raised billions in infrastructure funds and Goldman is about to launch another offering. Are investors, though, being rewarded? Certainly outside the U.S., the infrastructure market is much more mature and liquid. But, if states continue to run annual deficits, infrastructure opportunities could emerge, but it’s still a political hot potato. With CALPERS set to invest $9.3 billion in this asset class, look for California municipalities and cities to rethink taking in private funds. With these funds allocated for 2010, it is not likely to happen. To date, only $220 million has been earmarked for infrastructure and it typically takes months and even years to put the funds to work even though the returns are very attractive, in many cases hovering just below 20 percent. (rm) |
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Investors are now participating in new manager and consultant searches |
Investors are not waiting for the third quarter to make consultant changes or manager additions. IMI polls indicate consultants are faced with having to restate their “value-added” proposals to many institutional clients. Investors want to be reassured that their consultants can steer them through these uncharted and uncertain investment waters. Unfortunately, some consultants are already being replaced. Reasons include client service, firm infrastructure, new ideas, and manager performance. It should also be noted that many consultants are seeing increased investor RFP activity. As for managers, they, too, saw a similar surge in searches from equities, fixed income, and asset management over the first half of 2009. Managers who are actively marketing their products with emphasis on client service, especially with consultants, are having the best results. Consultants are most interested in meeting asset managers with strong infrastructure, low personnel turnover, and a solid commitment to service investors. (rm) |
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Are Leveraged Hedge Funds on Their Way Out? |
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Investors know that hedge fund returns have been less than dismal in 2008. Many would suggest the opportunities are dwindling. This writer would like to offer that hedge funds can’t get leverage so important to performance investment banks are short of capital to lend them. Just look at the demise of Lehman Brothers. Some believe hedge funds are protecting their capital should investors begin demanding their funds back.
Whatever you believe, the fact is that investment banks have been reining in their proprietary trading operations leading hedge funds with little access to credit. And if hedge funds can’t trade, then their principal fuel is being taken from them. This contraction in equity trading is not just restricted to the U.S. markets, it’s global. For example, volume on the Shanghai Stock Exchange fell 75 percent compared to the same period a year ago, and it has declined sharply on all major global exchanges. Lastly, thin markets can exaggerate price moves for equities. The value of equities fell for the first time since Citicorp began compiling such data in January 2003, dropping 29 percent.
Perhaps we are entering a time when the appetite for risk is declining. If so, look for hedge funds to try to seek out other investment opportunities such as private equity, or convertible bonds to support their fee schedules. - RM |
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September: Hedge funds continue to attract new assets |
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While hedge fund returns to date this year are not something managers can be particularly proud of, this isn’t dampening the enthusiasm for alternative assets shown by institutional investors and wealthy families.
These investors continually lineup at the door to place or increase their bets with many hedge fund managers. In fact, a survey conducted by Deutsche Bank’s Hedge Fund Capital Group expects $200 billion to flow into the funds in the coming year. This compares with a record low of $16.5 billion in flows during the first quarter of 2008, according to hedge fund research.
Where is the interest from investors today? Emerging markets seem to be getting the bulk of their attention. Topping the list are the Middle East and Latin America.
Perhaps what is most interesting is that, as hedge fund performance continues to slide into the single-digit area, fees remain remarkably high.
The question arises: what level of consideration is being made on behalf of investors about their risk management? Is the only focus on strategy performance and not on managers’ fees? Perhaps it’s time more due diligence was exerted by investors and managers alike. (rm) |
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New York real estate prices are still rising in spite of the overall slowdown in the U.S. economy. While bankers wrestle with tightening their loan policies, sovereign wealth funds are quietly buying up prime commercial real estate locations. A few months ago, the trophy GM building witnessed its sale at $2.8 billion to the Kuwait Investment Authority and the Qatar Investment Authority, the highest price ever paid for a U.S. office building. Now comes the pending sale of the Chrysler Building, a landmark art nouveau building built in 1930 in midtown Manhattan, almost adjacent to Grand Central Station. And who is the buyer? The Abu Dhabi sovereign wealth fund, which is ponying up $800 million - more than a 100 percent return for the lucky seller, Prudential. Clearly, the weak dollar is helping these smart investors take advantage of real estate opportunities. A note of caution though: Have we forgotten the Japanese coming to Manhattan in the 1980s, buying up buildings on Fifth Avenue from 40th Street to 60th Street - including much of the prime commercial structures near Rockefeller Center for record prices? Then a few years later, the Manhattan real estate bubble burst and U.S. investors swooped in with bargain basement offers to enable the Japanese to unload what had been a bad investment after all. (rm) |
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