Insurance Linked Securities

"...if it is good enough for KKR, it is good enough for us to investigate."

Last quarter the team spent significant time reviewing the insurance industry, in particular the Cat Bond and Insurance Linked Securities (ILS) market, and how and why there has been a recent investment uptake by hedge funds. And if it is good enough for KKR, it is good enough for us to investigate. We conclude that the ILS Fund universe appears ripe for consolidation while the market is likely to double by 2020 as some industry specialists suggest. Please contact us for a the full article (

The Case for a Venture Partner Model

Sascha Klamp, CEO of CITE, reviews the shortcomings of the nascent fund manager distribution approaches and argues for a more widespread use of the holistic venture partner business model in asset management.

Initially, it took allocators some time to fully comprehend the implications of the market events and the impact it had and still has on the funds industry. But once the initial shock-and-awe moment settled, redemptions across the fund of hedge funds landscape accelerated. As a consequence, the number and size of funds of hedge funds (FoHF) are riding down an inverse S-Curve.

While the initial redemptions were sluggish and appeared to be a drop in the ocean, this trend has now accelerated as larger allocators adjusted their investment and operating models to focus on sourcing and building internal hedge fund investment capabilities. For the first time, many FoHF analysts were confronted with writing redemption tickets rather than filling in subscriptions documents.

The natural assumption was that single-manager hedge funds would suffer and follow the decline of their largest source of capital pre-2008. Far from it: after an initial phase of decline in assets under management, which was long overdue no doubt, hedge fund assets have now surpassed the pre-crisis levels (previous peak $1.95 trillion in June 2008 versus $1.97 trillion in November 2013, according to Eurekahedge, 2013).

State Street debunks misconceptions about the Alternative Investment Industry

“Managers who remain innovative as they respond to demands from investors will be positioned for success in this new era where investors will look to employ alternatives more commonly than ever before.”

State Street released a new report titled “The Next Alternative: Thriving in a New Fund Environment” (September 2013). The report stresses that Fund Managers are adapting to the new order, finally.

Specifically, Fund Managers are reporting more information to investors and do so more frequenty. Finally, we appear to come close to mutually agreeable transparency levels. The report also examined the fee levels again. Not surprisingly, fees continue to be under pressure. One way to combat fee compression is to diversify into new product offerings which 29% of managers indicated they plan on doing over the next five years. Some 25% report that is what they have been doing since 2008. The burden of regulation is seen by some as an opportunity although they appear to agree that their cost base is going up as part of increasing regulatory scrutinity.

At CITE, we have been vocal about Transparency for many years and have always stated that it is not position level transparency that investors demand but rather (1) frequent access to the management teams and (2) to ad hoc reporting. We stress that product diversification is welcome in general to come closer to actually building businesses, further we maintain our view that the transition from a single strategy to a multi-product offering demands an exponential scaling of the underlying business. That is resources, including human resources, need to be carefully added. Lastly, our view is that the current regulatory regime may have been a step too far as public demand to put an end to ‘speculative’ investments has taken precendent over common sense. We feel that we will see a call to more pragmatic solutions over the next five years.