morgart presentation - alternatives harvard bus school pres final

7/30/2019 Morgart Presentation - Alternatives Harvard Bus School Pres Final

1/11

Hedge Fund Overview

Confidential Information

September 10, 2012

Joseph H. MorgartSenior Vice President Alternative Investment Strategies 401-292-4936

[email protected]


2/11

Why Have Hedge Funds Evolved?

Confidential Information2

Initially evolved as a response to protect or hedge against market movements First enjoyed success in the bull market of the 20s

One of the first documented funds was the Graham-Newman partnership (founded by Benjamin Grahamand Jerry Newman).

Alfred Winslow Jones is credited with the term a hedged fund.

Resurged in the 60s then latterly in the 90s because of the aligned -interest comp structure

and the notion that the investment vehicle was expected to exceed more traditional assetclasses (e.g. equities and fixed income).

Key to the dramatic growth in the 1990s was because of increasing allocation by institutionalinvestors pensions and endowment funds, following the Swensen or endowment model.

The premise was based on diversification, low correlation, and opportunity to generateadditional alpha.


3/11

Mean Allocation to Hedge Funds by Investor Type


3.6%

17.5%

5.0%

12.7%

3.0%

17.0%

5.7%

19.5%

7.3%

14.4%

4.2%

16.0%

6.0%

18.8%

7.2%

13.9%

3.2%

16.8%

6.5%

20.0%

8.6%

15.4%

2.9%

9.3%

6.8%

19.7%

8.2%

15.3%

3.8%

14.7%

0%

5%

10%

15%

20%

25%

Public Pension Fund Endowment Private Sector Pension Fund

Family Office/Foundation

Insurance Company Asset Manager

2007

2008

2009

2010

2011

M e a n

C u r r e n

t A l l o c a

t i o n

t o H e

d g e

F u n

d s

Source: The 2012 Prequin Hedge Fund Investor Review.


4/11

Top 10 Countries by Proportion of Institutional Investorsin Hedge Funds


Source: The 2012 Prequin Hedge Fund Investor Review.

Country Proportion of Global Total

US 56.7%

UK 12.0%

Switzerland 7.2%

Australia 3.3%

Netherlands 1.9%

Canada 1.9%

Japan 1.6%

Sweden 1.5%

Germany 1.2%

Italy 1.1%


5/11

Estimated Number of Funds Launched/Liquidated


Source: The HFR Global Hedge Fund Industry Report Second Quarter 2012.

328

673

1,087 1,094

1,435

2,073

1,518

1,197

659784

9351,113

304

-57 -92 -162 -176-296

-848-717

-563

-1,471

-1,023

-743 -775

-232

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q1 2012

Launches Liquidations

N u m

b e r o

f F u n

d s

N u m

b e r o

f F u n

d s


6/11

Estimated Number of Funds: Hedge Funds vs. Funds of Funds


Source: The HFR Global Hedge Fund Industry Report Second Quarter 2012.

538 550781

1,2321,654

1,9962,221

2,462 2,4392,162 2,037 2,001 1,971 1,932

3,335

3,904

4,5985,065

5,782

6,665

7,2417,634

6,845 6,8837,200

7,574 7,6767,768

0

1000

2000

3000

4000

5000

6000

7000

8000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q12012

Q22012

Funds of Funds Hedge Funds

N u m

b e r o

f F u n

d s


7/11

The Impact of the Financial Crisis on Hedge Funds


Source of investor liquidity redemptions Outperformance vs. long only

Missed alternatives investor expectations

Industry paradigm shift

Investor landscape shift High Net Worth to Pension Investor strategy shift absolute return

Investor manger shift stability


8/11

$684,546

$530,334

$461,624

$555,401

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q1 2012 Q2 2012

Equity Hedge

Event-Driven

Macro

Relative Value

Who Invests in Hedge Funds?


Once the retreat of high net worth individuals, the largest investors are now pension funds,endowments, and foundations


9/11

What has Happened to Hedge Funds Since the FinancialCrisis?


Legislative regulatory and industry efforts Short selling bands

Dodd Frank

Industry efforts

Attributes institutional investors are looking for in hedge funds Greater transparency

Clarity of risk management techniques

Hedge funds operational due diligence

Shift towards the larger, more established funds


10/11

What Were the Top 10 Largest Hedge Funds in 2007?


1

JP Morgan AssetManagement(AUM = $33.1 billion)

2

Goldman Sachs AssetManagement(AUM = $32.5 billion)

3

BridgewaterAssociates(AUM = $30.2 billion)

4

D.E. Shaw Group(AUM = $27.3 billion)

6

RenaissanceTechnologiesCorporation(AUM = $26 billion)

7

Och-Ziff CapitalManagement Group(AUM = $21 billion)

8

Barclays GlobalInvestors(AUM = $19 billion)

9

Man Investments(AUM = $18.8 billion)

5

Farallon CapitalManagement(AUM = $26.2 billion)

10

ESL Investments(AUM = $17.5 billion)


11/11

What are the Top 10 Largest Hedge Funds Now?


1

BridgewaterAssociates(AUM = $76.6 billion)

2

JP Morgan AssetManagement(AUM = $45 billion)

3

Och-Ziff CapitalManagement(AUM = $28.4 billion)

4

BlackRock(AUM = $25.5 billion)

6

Paulson & Company(AUM = $22.6 billion)

7

Angelo, Gordon & Co.(AUM = $21.2 billion)

8

RenaissanceTechnologies(AUM = $20 billion)

9

Farallon CapitalManagement(AUM = $19.2 billion)

5

Baupost Group(AUM = $23.4 billion)

10

Elliott Management(AUM = $19.2 billion)

AUM noted as of January 2012.

morgart presentation - alternatives harvard bus school pres final

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