Markets: Funds urged to merge

ANZ has a simple message for Australia’s $50.7 billion single-strategy hedge funds: merge.

“Merge until you’re a decent size,” Simon Ford, head of alternative investments at ANZ Wealth told the Australian Hedge Fund Forum in Sydney.

Ford told Markets Spectator that a hedge fund must have at least $1 billion in assets under management to attract institutional money from sources such as superannuation funds. That’s because regulations increasingly demand staff devoted to risk and compliance.

Hedge fund annual fees are typically 1.5 per cent of assets under management. A fund of $1 billion could be in a position to pay for staff to satisfy regulators and investors rather than a $250 million fund, says Ford.

“It doesn’t pay for us to take risks on small, emerging managers,” he says. “We are becoming more and more regulated.”

The Australian Securities and Investments Commission found just 12 single-strategy hedge funds to survey that had more than US$500 million in assets under management. These 12 funds represented 42 per cent of the Australian hedge fund industry as of September 30, 2012.

Ford says few institutional investors can afford to devote time to study more than 10 hedge fund managers. That means the largest hedge funds with the best track records over decades get the attention. Ford says 98 per cent of the hedge fund investment opportunities are outside Australia, and these funds have demonstrable track records.