Interest in alternative investing fuels AIMA’s growth

(March 11, 2005) Interest in alternative investing, fueled by heightened investor sophistication and lacklustre market performance in certain asset classes, is evidenced by the growing membership roster at the Canadian chapter of the Alternative Investment Management Association (AIMA).

The Canadian chapter of AIMA is the largest and the second youngest in the world, after South Africa. When members first launched the Canadian chapter back in March 2003, their events were attended by only 50 or 60 participants.

Today the lunch meetings are quite crowed with members, guests and drop-in participants who want to learn about the industry. More than 150 people came to the sold-out event at the National Club in Toronto on Wednesday to hear Dr. McFall (Mac) Lamm discuss hedge fund cycles, rotating strategies, and his thoughts on where the “smart money” is investing.

In the past, the realm of hedge fund investing was strictly limited to ultra wealthy investors, those with family offices and assets far surpassing what a typical high net worth advisor might see.

Hedge investments are also popular with endowment funds set up to manage gifts of money or property to institutions like universities, galleries or religious establishments to provide ongoing income to finance operations.

Lamm says in the U.S., many family offices serving clients with assets of at least $1 billion to $3 billion closely mimic Ivy school endowments like those at Harvard and Yale. He says those have generated the best returns in the past 10 years with about 22% of their portfolios in hedge funds.

It’s not entirely surprising then that banks, institutions and public pension plans are looking more carefully at hedge funds. AIMA events are often attended by pension managers, other investment managers and even Ontario Securities Commission officials.

The trickle down effect is also becoming more apparent with average investors becoming aware of the existence of, if not the actual mechanics behind, hedge products in the industry. Although hedge funds are not allowed to advertise, media exposure and product variations like closed-end funds traded on the TSX and principal-protected notes that make hedging strategies available to a wider range of customers, have all contributed to a growing awareness of the industry.

“There’s a huge amount of interest in alternatives, not just here, but right around the world,” says Jim McGovern, AIMA Canada Chair and CEO of Arrowhedge Partners. “All the major banks here have professionals looking at hedge funds, servicing hedge funds and so on. I think it’s encouraging that more people want to participate in the industry in an organized fashion that promotes key things like due diligence, transparency, the properties of alternatives in portfolios and all those sorts of good things. It’s a good group with good aims.”

In June the association introduced the AIMA Hedge Fund Primer for Canadian investors. The 48-page publication, aimed at the financial community, financial advisors and individual investors, covers different hedge fund strategies, the risk/return characteristics of hedge funds, and reviews this history of the hedge fund industry. At the same time the association introduced the inaugural AIMA Canada Research Award, designed to promote Canadian research in alternative investments.

AIMA plans to launch a French version of the primer by the summer. At the end of April, the association also plans to start releasing strategy papers to analyze and explain different hedge fund strategies like principal-protected notes, mortgage-backed securities, convertible arbitrage, equity market neutral and others, to expand on subjects already covered in the primer.

In his presentation, Lamm told lunch delegates that there are really only nine or 10 “plain vanilla” hedge fund strategies out there, and those aren’t all that complicated or difficult to understand.

“We wanted to put out some additional research papers on various hedge fund strategies to give the market some more objective or industry-written views on strategies so people can become more familiar,” notes McGovern. “Like the speaker said today, these things are not rocket science. It’s just a different language and a different approach. You need to spend a little bit of time researching it. You have to do some work.”

Filed by Kate McCaffery Advisor.ca, kate.mccaffery@advisor.rogers.com