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James Williams, Hedgeweek

Expense fears for emerging market funds under UCITS V, Brandes Investment Partners launches EM equity fund, Alternative UCITS AUM grows by EUR9billion to EUR129billion, Kinetic Partners teams with Riskdata to launch risk monitoring and reporting platform


San Diego-based Brandes Investment Partners has launched a Dublin-domiciled emerging market equity fund reported Citywire Global this week.

San Diego-based Brandes Investment Partners has launched a Dublin-domiciled emerging market equity fund reported Citywire Global this week. The Brandes Emerging Markets Equity Fund will leverage the firm’s expertise in the small and mid-cap emerging and frontier bond markets. Brandes said they were launching the fund in response to increased client demand and will operate with the same value-led approach that underpins the firm’s investment philosophy; in that sense it will serve as an alternative to investors looking beyond existing equity funds that focus purely on growth. The firm’s eponymous founder, Charles Brandes, said that over the past decade emerging market strategies had attracted significant inflows from investors hoping to capitalise on the rapid growth of emerging market economies. “However, many have chosen to invest passively and as a result have missed out on the more expansive return opportunities from regions, sectors and companies outside of the benchmark,” commented Brandes.

Frontier and emerging markets funds could potentially become more expensive under UCITS V if European rules on depositaries are pushed through by Brussels policymakers reported FT Adviser. That’s because the powers that be in Europe are transferring the same strict liability rules to be used in the Alternative Investment Fund Managers Directive (AIFMD) over to the UCITS framework. What this means is that fund depositaries would have to act as insurers if assets are lost or somehow stolen. The fact that this could potentially apply to UCITS funds is causing those in the industry to voice legitimate concerns that this could severely impact returns for investors. Some countries do not have large multinational custodian banks actively operating there to protect client assets; this would therefore mean that fund depositaries would be on the hook for any asset losses, as opposed to merely holding them. Under the UCITS proposals, investors would also be able to sue depositaries for any incurred losses.
Of course, just like in the hedge fund world, depositaries aren’t just going to absorb the additional costs of insuring assets; rather, these costs will be directly transferred to managers, and ultimately end investors. Peter Grimmett, head of fund regulatory development at M&G suggested that it could lead to an additional 5 to 10 basis points on top of an annual management fee of 1.5 per cent. He admitted that these costs may not materialize given that no one has ever lost assets like that in funds, but was quoted as saying: “But some depositaries might say they are not going to provide depositary services for emerging markets funds as it is too expensive.” Let’s hope common sense prevails and investors don’t see their potential return streams being hit.
The latest quarterly report released by Alix Capital, provider of the UCITS Alternative Index, shows that alternative UCITS funds continue to show signs of growth. Total assets for Q2 rose from EUR120billion to EUR129billion, whilst those strategies that witnessed the strongest growth in assets were found to be CTA (26 per cent) and Macro (17 per cent). A total of sixteen new funds were launched and four closed taking the total number of global funds to 776. Perhaps most revealing was the fact that the 20 largest single manager funds now account for EUR64.9billion of the assets; some 50.2 per cent. Leading the way is Standard Life Investment’s Global Absolute Return Strategies (GARS) fund with approximately EUR14billion in AUM.
As for the best performing single manager funds so far this year, the Renaissance Ottoman Fund (Emerging Market) currently leads the way, up 21.48 per cent through June. In the fund of funds space, the top performer is Goldman Sachs Dynamic Alternative Strategies portfolio (DASP), up 2.28 per cent. The report also found that the three largest strategies remain unchanged. They are: fixed income (EUR40.6billion), long/short equity (EUR22.2billion) and macro (EUR18.8billion).   
Rounding off the news this week, Kinetic Partners has launched a risk monitoring and reporting platform in partnership with Riskdata, a risk management solutions provider. The service provides a scalable, transparent, UCITS-compliant, third party solution for administrators, fund management companies and hedge funds to monitor their risk positions. 
The new offering combines Kinetic Partners’ expertise in risk management, and risk monitoring requirements with Riskdata’s risk analytics, regulatory-compliant models and cross-asset-class risk data service, which provides a cost effective alternative to an in-house risk system. 
The new service will provide all risk management functionalities within one independent platform. 

The development of this service is in response to escalating pressure from regulators, who are increasingly concerned about risk monitoring and transparency, resulting in firms needing robust risk and compliance systems. Recent high profile trading losses, such as JP Morgan’s disclosure of an USD5.8bn losing position has reignited the debate on risk oversight and underlined the importance of risk monitoring controls. Pierre Bourlatchka, director at Kinetic Partners, said: “Kinetic Partners is delighted to be partnering with Riskdata to provide this comprehensive solution to risk monitoring and transparency. Riskdata has excellent presence in the market and offers a strong support and analytics team.”

Olivier Le Marois, chief executive officer of Riskdata, added: “Empowering the highly skilled Kinetic Partners team with our scalable risk technology and pre-calculated data service, we are very proud to collaborate on this unique full-service risk-reporting platform, where the process and resources are focused on quality and reliability.”

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