|September 13, 2012
Benedicte Gravrand, Opalesque Geneva:
Anric Blatt, Chairman of Global Fund Exchange, an investment management group, told Opalesque that he would drastically reduce his fees for a couple of month.
All his funds are multi-manager funds: either funds of managed accounts, hybrids or funds of hedge funds. They focus on investments in clean energy, water, agriculture, energy and natural resources.
Investors who invest up to $100m in any of the funds within the next two dealing dates (September 28 and October 31) will be charged a flat management fee of 0.75% per annum, and all performance fees will be waived for three years, he said.
Global Fund Exchange came into the hedge fund industry with the idea to make difference. “We saw a massive gap in the market place between institutional investors putting capital to work and essentially the most significant asset classes that are going to drive future human growth, that is energy, water, agriculture, clean energy, natural resources, carbon trading and so on,” Blatt explained from his New York offices.
He found by speaking with institutional clients that although the latter love the funds’ themes, the full transparency and the weekly estimates his group supplies, they are not so keen on the “fees on top of fees.” This is becoming a classic challenge in the world of funds of funds, as investors are increasingly reluctant to bear the double layer of fees (the underlying managers’ management and performance fees, as well as those of their fund of funds manager.)
So Global Fund Exchange (GFE) had a very close look at the effect of fees on performance and found that they agree with institutional investors. They worked out that removing the last layer of performance fees (their own, not the underlying managers’) and lowering management fees would create a win-win situation; the investors would only have one layer of performance fees (usually around 20% in the world of hedge funds), and GFE would gain more assets. And instead of going through third-party marketers – who must be paid fees – GFE are now making direct offers.
Here is as brief overview of the funds of funds in question:
– The Aquaterra fund, a portfolio of 8-10 specialist managers investing in agriculture, water and other scarce natural resources. This Cayman-domiciled feeder fund has returned 48% since its April ’08 inception. It was up 2.47% in July and up 3.52% YTD (we wrote about it last year).
– The Earth Wind & Fire (EWF) Fund is global macro, multi-strategy, multi-manager investment fund focusing on the future of energy through eight segregated portfolios: clean energy, water, agriculture, energy, natural resources, carbon, systematic trading and hedging. It has returned 47% since its January’07 inception. It is up 0.59% in July, down 1.38% YTD.
– The EWF Pure Water Fund, a long-biased strategy focused on specialist water equity managers. The Cayman-domiciled fund has returned 7.44% since its January ’07 inception. It is up 1.20% in July, up 0.51% YTD.
– The EWF Energy Fund gathers highly experienced energy managers. It has returned 45% since its January ’07 inception. It was down 1.37% in July, down 2.25% YTD.
– The EWF Hybrid Energy Fund comprises a mixture of traditional energy and clean energy investments. It has returned 36.8% since its January ’07 inception. It is down 0.14% in July, up 1.89% YTD.
The HFRI Fund of Funds Composite Index is up 2.40% YTD (to August) and the HFRI Energy/Basic Materials Index down 5.09% YTD.
New, improved model needed now
In the last few years – since ’08 – investors, faced with sometimes lukewarm performance from their hedge fund investments, have been trying to negotiate or re-negotiate the traditionally high 2-and-20 fees that are eating into the returns. Because of tricky performance and the double layer of fees, funds of funds have seemed a lot less attractive to investors and have been suffering as a consequence.
The fee re-negotiation is starting to work among single manager funds, as Preqin, a research house, recently confirmed: “The current mean performance fee for single-manager hedge funds is 18.69%, whereas in 2011 this figure stood at a higher 19.20%.” (see our article here).
Funds of funds need to follow suit. Negotiating fees with underlying managers, lowering some of the costs, lowering their own fees, waiving some, and redistributing retrocessions would attract a lot more assets and could improve the uncertain prospects of this otherwise valuable business model.
This article was published on Opalesque and can be accessed here:
Category Archives: Press Releases
Anric Blatt & Lauralouise Duffy Discuss Opportunities in Agriculture & Water on HedgeFundsReview.com
Chairman Anric Blatt and CEO Lauralouise Duffy of Global Fund Exchange talk about the challenges of a multi-manager fund of funds focusing on commodities, energy, water and agriculture strategies.
Global Fund Exchange, a fund of funds with expertise in the commodity, agriculture and energy sectors, has a different way of constructing portfolios as well as viewing the markets.
“We look at energy as what we call the bridge period. The bridge period represents traditional energy becoming cleaner and more energy efficient while clean energy becomes more cost efficient and more easily accessible,” explained CEO and principal Lauralouise Duffy.
“If you look at energy over the last 20 years, 1990-2010, you’ll find that 83% of all new energy demand was met by fossil fuels. However, going forward from 2010 to 2030 we are anticipating a 40% increase in energy demand across the globe. Of that energy we predict that 64% will be from traditional energy sources,” she added.
According to Duffy, Global Fund Exchange looks to find the “most efficient, cost-effective and easily accessible energy there is out there”. Duffy and chairman and principal Anric Blatt agree that both traditional and new energy sources are “intrinsically aligned”. If investors look at these two in isolation, they “will see a lot more volatility”.
“We have a theme: people, climate, profit. We need to meet the needs of the people. We need to be respectful of the planet but nothing happens unless profitability is built into it. Our investors want to be in this space but when you try to play it in isolation, through the water sector or through the clean energy or natural resources sector, you have a lot of volatility,” explained Duffy.
“What we have created is a way to invest in what we call the future of energy,” she continued, “a way to put your toe in the water without risking losing your whole leg. We’ve found that people are very excited to have the opportunity to play emerging energy – the clean energy, agricultural and water sectors – and simultaneous playing the entire energy revolution. We do this by managing each portfolio as a separate portfolio that is geographically, sub-sector and asset-class diverse.”
Blatt gives an example. “We are really looking for the tried and tested energy analysts who truly understand the infrastructure, yields on that infrastructure, financing customers and so on.” He believes in the financial sense of energy projects, where it is a good investment and not because “we want to be clean and green”.
“We have very deep research into the big macro factors shaping the world: what does the next 50 years look like, what are the big picture themes? We go and find the best niche experts in that particular geography or sector and then start due diligence. That takes a very long time. We want to be ready. When we want deploy money into carbon or clean energy in , say, Northern Europe, we know who is the best manager on the spot,” said Blatt.
Duffy has been a principal of Global Fund Exchange since 2006. She has a 21-year career in finance and hedge funds across a range of asset classes in emerging and developed markets.
Blatt has been with the Global Fund Exchange group since its founding in 2005. His principal areas of focus include strategy allocation, portfolio management, manager research, due diligence and new product development and structuring.
Global Fund Exchange specialises in tailor-made multi-manager portfolios for a broad range of clients including pension funds, sovereign wealth funds and other institutions in global tactical asset allocation, alternative investments, energy, commodity and multi-strategies.
Originally, Global Fund Exchange was established in Hong Kong and Switzerland to provide fund establishment, seeding and legal infrastructure, independent risk monitoring and compliance for emerging managers. The group relocated to the US in 2007 where it carries out fund management including portfolio construction, manager selection, due diligence, macro overlay, asset allocation and portfolio management. The group companies provide independent risk monitoring and ongoing due diligence to institutional clients across all asset classes and managers in its portfolios.
Opalesque Exclusive: Highlight on energy (5) – Earth Wind and Fire Fund aims for uncorrelated portfolios in volatile sectors
From Kirsten Bischoff, Opalesque New York:
The philosophy behind investing in energy and resources is a simple one for Anric Blatt and Lauralouise Duffy, founders of Global Fund Exchange, the growing number of people around the globe is putting stress on the resources of our planet; smart investing in energy, clean energy and natural resources can drive positive environmental change and positive profits.
There are many factors placing stress on our resources, two of the biggest are population increases and development as the global economy reaches undeveloped nations.
– With the population growing by approximately 79 million every year, energy consumption in the developing world will overtake the amount consumed by the developed world in 2015. That’s a mere five years from now.
– As nations and economies develop over the next 25 years, global energy demand is estimated to increase by almost 60%.
Industry in transition
“We are in a bridge period,” Blatt says, regarding global efforts to change energy consumption habits. With traditional energy usage pegged at 96% and alternative energy hovering at only 4% (not to mention the slow pace of environmental regulation in many countries), change is going to be gradual.
“So we’ve come to this bridge period where traditional energy starts to become cleaner or more energy efficient, and where alternative energy becomes more cost efficient,” he says. “For those with a vision, these are really exciting times. This global energy transition offers the most significant investment opportunities my generation has ever seen. We’ve pioneered the concept of ‘Investing in the Bridge’ to take advantage of these profitable themes.”
Where is the money flow?
Deciding that the energy and natural resources space would provide opportunity to both invest in a positive future for the world and a profit, Blatt next determined on a strategy. Venture capitalism is high risk, and the firms with access to cash flows are not the small, emerging firms, but listed, public companies with access to stimulus money and targeted government-driven investments in the environment. Private equity difficulties include liquidity mismatches.
Tracking capital expenditures around the world is something the team does very carefully. Denmark, for example, has focused on wind technology, Germany and Spain on solar, Italy on solar and geo thermal, and South Korea has spent immense amounts of money on smart grid technology. China has recently surpassed the U.S. in allocations to smart grid technology.
“At the end of the day, all that funding goes into public markets,” he says. “So we made a conscious choice to find the best niche managers around the globe and run with them what is an energy hybrid portfolio.”
New York-based Global Fund Exchange manages The Earth Wind & Fire Fund Ltd. with a mandate to utilize a diversified global macro, multi manager investment approach to investing in the world’s premiere specialists in all areas of the new energy revolution.
The fund focuses on clean energy, traditional energy, water, natural resources, carbon and agriculture, and then adds a hedging strategy to all of these to reduce both volatility and market-related risk. The focus of the fund crosses so many areas of energy because as Blatt points out, everything is interconnected.
“In order to produce energy you need water and in order to produce water you need energy. To convert commodities into a usable, commercial format you need energy. To convert energy into a usable format you need natural resources. Everything is interconnected and all of these things have climate implications.”
Building an uncorrelated portfolio in a volatile sector
Investing in any single area of the “Energy” space has two distinct risks: market exposures, especially during the financial crisis, have created additional volatility; and the risk of investing in a single sector where everything is correlated. To manage these risks one of the main focuses for the team is in calculating, tracking, and building a non-correlated portfolio.
Perhaps the best way to break down the portfolio is in terms of the three major working parts that it is comprised of. Investments have been identified as sensitive to equity markets (clean energy, water, and agriculture investments) and sensitive to commodity markets (energy, carbon, and natural resources). A third group of strategies, those that work to take the volatility out of the prior two groups are the trending and alpha strategies (systematic trading, a hedge portfolio, and a cash portfolio).
This focus on non-correlation within the sub-portfolio has seen the overall portfolio make solid gains during the three years since its January 2007 inception (annualized gains are +14.22%, with only three down months).
Private money is taking stakes in the future of the planet
While government spending in many countries has started to focus on alternative energy, there is additionally a shadow network of private money that has started to heavily invest in the space. Both environmental philanthropists and large businesses are positioning themselves with large stakes in this still-burgeoning industry.
“It has been a wonderful experience to focus not only on the profit aspect of business, but also on the impact of our actions on the planet and its people. Hence our philosophy – People, Planet, Profit.
Part Six: next Friday.
Part one (Tiburon: Wind and solar won’t save the world, hence the renaissance of nuclear) can be found here,
Part Two (ARP: Now we can all hedge power exposure intelligently) here,
Part Three (Rampart bets on UK power) here, and
Part Four (FoHFs Culross looking for lower vol hedge funds) here.
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On Saturday morning, Warren Buffett published his latest letter to Berkshire Hathaway shareholders.
Here are a few examples of how we apply Charlie’s thinking at Berkshire:
• Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be. In the past, it required no brilliance for people to foresee the fabulous growth that awaited such industries as autos (in 1910), aircraft (in 1930) and television sets (in 1950). But the future then also included competitive dynamics that would decimate almost all of the companies entering those industries. Even the survivors tended to come away bleeding.
Reuters, 10 February 2010 – Nasdaq and an arm of Deutsche Bank launched a global alternative energy and clean technology stock index on Wednesday that attempts to provide a pure signal of how the business is performing.
DB Climate Change Advisors, the climate change investment and research branch of Deutsche Bank’s asset management business, and Nasdaq OMX Group, Inc said the DB NASDAQ OMX Clean Tech Index is comprised of 119 companies.
Mark Fulton, Deutsche’s global head of climate change investment research, said companies in the index derive at least a third of their revenues from clean technology. And 106 of the companies have more than half their revenues in the space.
“These are companies that have very definitely declared a large stake in the clean tech sectors,” Fulton told Reuters. “We tried to produce an index that sends a purer, concentrated set of signals.”
The index, the first between a global bank and a global exchange company, lists 30 companies in solar energy and 13 in wind power. It also includes companies in energy efficiency, transport, waste management and water companies.
The index is equal-weighted to offer greater exposure to smaller-cap companies. In addition to a price return index, it also calculates a total return version.
Deutsche Bank Asset Management had about $6 billion under management as of September 2009 in climate related investments.
(Reporting by Timothy Gardner; Editing by David Gregorio)
Sourced from the Thomson Reuters Carbon Markets Community – a free, gated online network for carbon market and climate policy professionals.
ABOUT THE INDEX – A QUICK SUMMARY FROM ANRIC BLATT
The index is comprised of 119 companies identified by DBCCA from a global universe of 4,000. Each stock must have at least one third of revenues derived from clean technology within investable geographies and exchanges identified by NASDAQ OMX. Of these companies, 106 have over 50% in clean tech revenues, using only demonstrated revenue from filed financial statements. Constituent companies must have a market capitalization of $250 million and over $1 million average daily dollar trading volume. The index is equal-weighted to offer greater exposure to smaller-cap companies
NOTE: Two subsidiaries of Deutsche Bank act as the custodian and administrator of some of the funds managed by Global Fund Exchange.
Global Fund Exchange is proud to be a Signatory of the United Nations Principles for Responsible Investing (PRI)
Global Fund Exchange is proud to be a signatory of the United Nations Principles for Responsible Investing (PRI), an investor initiative supported by more than 650 institutions representing in excess of $18 trillion in assets.
We believe that environmental, social and corporate governance (ESG) issues can affect the performance of our business and investment portfolios, and it is increasingly important for the investment community to align its goals with the broader aims of society.
Global Fund Exchange is committed to applying the Principles for Responsible Investment to all of our business and investment decisions in line with our fiduciary responsibility to our clients. We are proud to join with our fellow Signatories in this historic effort to promote responsible investment.
To learn more about the UN PRI Initiative and how you and your organization can join the effort, please visit the UN PRI Website.
To learn more about Global Fund Exchange and its investment philosophy, please visit our website – click here
8:43 AM EST, December 18, 2009
Good morning. It is an honor for me to join this distinguished group of leaders from nations around the world. We come here in Copenhagen because climate change poses a grave and growing danger to our people. All of you would not be here unless you — like me — were convinced that this danger is real. This is not fiction, it is science. Unchecked, climate change will pose unacceptable risks to our security, our economies, and our planet. This much we know.
The question, then, before us is no longer the nature of the challenge — the question is our capacity to meet it. For while the reality of climate change is not in doubt, I have to be honest, as the world watches us today, I think our ability to take collective action is in doubt right now, and it hangs in the balance.
I believe we can act boldly, and decisively, in the face of a common threat. That’s why I come here today — not to talk, but to act. (Applause.)
Now, as the world’s largest economy and as the world’s……….read more