Five years ago this week the world's financial system was in meltdown mode as Lehman Brothers filed for bankruptcy protection (September 15^th 2008) and by September 22^nd a deal was put to the bankruptcy court which saw Barclays acquire Lehman's core business. This was closely followed on 22^nd September by Nomura acquiring Lehman's Asia Pacific businesses, including those in Australia.

Bankruptcy Judge James Peck was quoted as saying that Lehmans was "in effect the only true icon to fall in a tsunami that has befallen the credit markets."  In reality plenty of others fell also, including local Australian companies such as Babcock and Brown and Allco, although whether they were "true icons" is perhaps debatable.

On the 15^th September the Dow closed down 4.4%, and on September 29^th it fell by an even larger 7%.  Panic gripped investors as credit markets froze, counter party risk went off the Richter scale, and wealthy investors reputedly backed their cars up to their local bank branch with empty suitcases at the ready.

To be fair to Kevin Rudd and his so called "gang of four" the decision at the time to effectively guarantee the Australian banks prevented complete panic. Those not prepared to give Rudd any credit for anything will no doubt claim he did the only thing possible, and for once took the advice of others more knowledgeable than himself.

Wind forward five years and the Dow is back at record territory thanks to QE tapering being shelved indefinitely, while the ASX200 is at five year highs but still around 20% below its pre crisis highs. In spite of this some US based funds are rumoured to be shorting the Australian banks, based on their valuations and the risk of a property bubble.

Given the total reported short positions of the big four banks as per ASIC's reports dated 10^th  range from a low of 0.23% (NAB) to 0.72% (WBC) of total outstanding shares they're certainly not piling into the trade with their ears pinned back, which is probably sensible.  Australian house prices might be expensive, but given local factors such as supply and demand, low interest rates, immigration and negative gearing they're unlikely to collapse any time soon.

Meanwhile fully franked bank yields (over 5% pre franking) and the lowest interest rates in most borrower's memory will probably support valuations as well.  Of all these factors the removal of negative gearing probably poses the greatest threat, but given Tony Abbott's only just been elected, he's unlikely to want to jump off the political cliff quite that quickly.

So markets seem underpinned, hooked on QE. Maybe Ben Bernanke didn't want to end his tenure on a sour note.

EVENTS

An upcoming event that may be of interest for Superannuation member administration and investment operation service providers is the Superannuation Fund Back Office conference coming up on 21-22 October. Visit the International Business Review Conferences website for more details.

If you are visiting Hong Kong, the UCITS Asia 2013 Conference is on 9-10 October. AFM have a 10% discount coupon available, more details here.

The Asset Allocation Conference is also coming up from 30th October to 1 November 2013 at the Grace hotel in Sydney. Details are here.

IPARM Australia 2013 is being held in Sydney on 18-19 November on Investment Performance Measurement Attribution and Risk. Speakers include Dr Thomas Gillespie from Aurora Funds Management.

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

Insync Global Titans Fund recorded -1.95% during August with the Fund's low risk shown by the maximum drawdown of -2.04% (ASX Accumulation Index -6.72%) over the last 12 months. The low risk attributes are further indicated by its downside deviation of 3.16% (Index 5.93%) and a down capture ratio of -0.80, also over the last 12 months.

The Pengana Asia Special Events (onshore) Fund returned 1.03% during August 2013 with gross and net exposure averaging 158% and 12% respectively.  Short index futures protected the Fund during the month, while non-directional trades such as M&A and stubs trades also contributed positively to performance. Malaysian and Japanese trades proved particularly profitable during the month.

Auscap's Long Short Australian Equities Fund had a strong August returning 4.28% with an average net exposure of 61.1% (96.1% long and 35.0% short) across 22 long positions and 13 short positions. The Fund's biggest exposures were spread across consumer discretionary, financials, healthcare and telecommunications sectors. The manager has written an interesting article on the relative merits of investing in large and mid cap versus small caps. You can read the report here.

Updated AFM Fund Reviews were also completed on the following funds this week:

The Bennelong Kardinia Absolute Return Fund has returned consistent top decile long short equity sector performance with a since inception (May 2006) return of 14.11% pa (ASX Accumulation Index 4.18% pa) and a standard deviation of 7.89% pa (Index 14.86%) indicating the Fund's ability to generate strong risk-adjusted returns. The Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with a seven year track record. 

Optimal Australia Absolute Trust is a specialist Australian equity investment manager and the Fund has recorded out-performance of the market since inception in September 2008 with approximately 84% of monthly performances having positive returns and the largest drawdown -1.38%. The Fund has a long/short equity strategy typically with a low but variable net market exposure comprising 40 to 65 stocks broadly selected from within the ASX200. 

The Aurora Fortitude Absolute Return Fund has an 8 year track record investing in ASX listed equities. Over 87% of monthly performances have been positive, with no losing months in 2008 and a largest drawdown of -2.09%. Strong use of low risk "long" derivatives and option overlays has provided positive returns with low volatility during periods of market dislocation. 

Morphic's Global Opportunities Fund is a global equity long/short manager with a long bias and a macro-economic overlay. The mandate allows the Fund to short sell, use derivatives and invest in assets such as commodities and currencies. Morphic's philosophy is that only funds with flexible hedging strategies will be able to deliver acceptable, steady, real, absolute returns over the investment cycle. Risk management is a primary consideration in portfolio construction and the strong emphasis on risk is evidenced by the Fund's very high Sortino ratio of 14.88 and maximum drawdown of -0.52%. 

For something completely different - tomorrow is Leonard Cohen's 79th birthday. For someone who spent a reasonable part of his mis-spent youth listening to tracks such as "Suzanne" and "Bird on a Wire"  I thought you might like to listen to the great man's live recording (and his explanatory preamble) of Chelsea Hotel. According to Wikipedia the landmark Chelsea Hotel is currently closed for renovations, but remains a feature in many films, songs and books.

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

MORPHIC GLOBAL OPPORTUNITIES FUND

ATTACHED FILESMorphic Global Opportunities Fund (pdf format)

UCITS Asia 2013

Strategies for Enhancing Your Presence in Asia and Accessing Local End-Investors
9-10 October 2013, The Excelsior Hotel, Hong Kong

For more information please visit UCITS Asia 2013 (10% Discount with VIP Code: FKW52626FMWB)

With the region's most influential funds (both local and global) in attendance, IIR & IBC Finance Events will be outlining the most effective routes to market for launching and growing your product.

FOCUS ON ASSET MANAGERS

• Mutuals: Asset Manager's Priorities
• Alternatives: Current Fund Strategies
• Chinese Asset Manager Panel

FOCUS ON DISTRIBUTION

• Is UCITS Still Relevant?
• Successful Distribution Strategies
• Sales Trends & Investor Appetite
• Advisory Fee Transparency

FOCUS ON CHINA

• Mutual Recognition Scheme
• Distribution Within China
• How Chine is internationalising

FOCUS ON REGULATION

• AIFMD vs. UCITS
• Bringing Funds Onshore
• UCITS V Implementation
• HK Registration

View the full agenda here

Expert Speakers include:

REGULATORS

Christina Choi, Senior Policy Director, SFC

FUNDS

Freddie Chen, Executive Director, CHINA ASSET MANAGEMENT
Sundeep Sikka, CEO, RELIANCE CAPITAL AM
Nick Good, Head, Strategy & Business Development, APAC, BLACKROCK
Ashwin Mehta, CEO, ING SECURITIES & INVESTMENT TRUST

INVESTMENT MANAGEMENT

Jenny Tian, Managing Partner, SPRING CAPITAL
Eleanor Wan, CEO, BEA UNION INVESTMENT
Gerard de Benedetto, CEO, AN ZHONG ASSET MANAGEMENT

LEGAL

Alwyn Li, Partner, DEACONS
Stephane Karolczuk, Partner, ARENDT & MEDERNACHT

SERVICE PROVIDERS

Siu-chan Kwan, Director, Securities & Funds Services, CITI
Lawrence Au, Head of Asia Pacific, BNP PARIBAS SECURITIES SERVICES
Stewart Aldcroft, CEO, CITITRUST

To register visit website; call us on +44 (0)20 7017 7790 or email us.
Quote VIP Code: FKW52626FMWB for your additional 10% Discount.

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESAurora Fortitude Absolute Return Fund (pdf format)

OPTIMAL AUSTRALIA ABSOLUTE FUND

Attached is our most recently updated Fund Review on the Optimal Australia Absolute Fund.  

We would like to highlight the following:

Optimal Australia is a specialist Australian equity investment manager and the Fund has a long/short equity strategy typically with a low but variable net market exposure comprising 40 to 65 stocks broadly selected from within the ASX200. The Fund has recorded out-performance of the market since inception in September 2008 with approximately 84% of monthly performances having positive returns and the largest drawdown -1.38% 

The investment team comprising George Colman, Peter Whiting and Stephen Nicholls have close to 90 years combined experience in equity markets.

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESFund Review: Optimal Australia Absolute Trust (pdf format)

BENNELONG KARDINIA ABSOLUTE RETURN FUND

Attached is our most recently updated Fund Review. You are also able to view the Fund's Profile. 

The Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with a seven year track record. Consistent top decile long short equity sector performance with a since inception (May 2006) return of 14.11% pa (ASX Accumulation Index 4.18% pa) and a standard deviation of 7.89% pa (Index 14.86%) indicate the Fund's ability to generate strong risk-adjusted returns. The Fund also has a strong focus on capital protection in negative markets. Portfolio Managers Mark Burgess and Kristiaan Rehder have significant market experience, while the Bennelong Group provide infrastructure, operational, compliance and distribution capabilities.

Sean Webster

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESBennelong Kardinia Absolute Return Fund (pdf format)

Last week's hope for a clear mandate for the new government in both houses has not come to pass, but it's still too early to tell if incoming PM Tony Abbott will be able to cobble together a working relationship with the rag tag group of independents in the Senate. Anyway, enough of politics. I'm just thankful the electioneering is over for the moment.

This was Hedge Fund Week in Australia, with a range of events and the inevitable post event socialising testing my stamina. AIMA Australia put on an excellent and well attended "by the industry, for the industry" one day seminar in Sydney on Tuesday, which had it not clashed with a commercially sponsored event in Melbourne targeting the same audience would have made it standing room only.

One senior AIMA committee member admitted that they even surprised themselves with the professionalism of the day's proceedings. Certainly the quality of the speakers and panelists, with AIMA Australia's Chairman Paul Chadwick's armchair chat with Sir Michael Hintze from CQS a standout, kept the audience's attention through to the end of the day.

Also on stage was ASIC's deputy commissioner Greg Tanzer who delivered the outcome of ASIC's review of the potential systemic risk of the largest local hedge funds to Australia's financial markets. In what would have been a disappointment to some of the gloom merchants in the media who love to love hating hedge funds, ASIC's findings were that they posed no or little risk. Amongst ASIC's findings were that out of the total funds surveyed, the largest 12, each with greater than $500 million in FUM and representing 42% of the total, held just 0.4% of the ASX All Ords' market capitalisation.

However that's not to suggest that there's no risk, just that they pose no systemic risk to the system in the way that LTCM or Amaranth did in the past.

Last night saw the annual Australian Hedge Fund Awards supporting the Cure Our Kids Foundation. Congratulations to all the finalists, to the evenual winner Chris Black from the Laminar Credit Opportunities Fund, and to John Corr who took out the well deserved "Contribution to the Industry" Award.

EVENTS

An upcoming event that may be of interest for Superannuation member administration and investment operation service providers is the Superannuation Fund Back Office conference coming up on 21-22 October. Visit the International Business Review Conferences website for more details.

The Asset Allocation Conference is also coming up from 30th October to 1 November 2013 at the Grace hotel in Sydney. Details are here.

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

Bennelong Kardinia Absolute Return Fund returned 0.96% over August with a net equity market exposure of 24.7% (49.2% long and 24.4% short). The Fund's since inception (May 2006) return is 14.11% pa (ASX Accumulation Index 4.18% pa) with a standard deviation of 7.89% pa (Index 14.86%).

The Optimal Australia Absolute Trust returned 0.14% for August with a net risk exposure of 9.2% and gross risk exposure of 61.2%.  The Fund is characterised by low risk with a Sortino Ratio of 5.39 (ASX Accumulation Index 0.06) and high reward-to-risk with a Sharpe Ratio of 1.81 (Index 0.12). All data is since the Fund inception in September 2008.

Morphic Global Opportunities Fund returned -1.57% over August with net leverage of 88%. The Fund's lower risk is evidenced by a downside deviation of 1.87% (ASX 200 Accum 5.70%). The Sortino ratio of 14.88% as compared to 3.37% (Index) and the Sharpe ratio of 3.10 compared to 1.87 (Index) demonstrate the Fund's strong risk-adjusted returns.

The Aurora Fortitude Absolute Return Fund returned 0.18% for August bringing the Fund's percentage of positive months to 87% since March 2005.  Sentiment towards China appears to have turned with the materials index posting a solid 3.7% gain for the month. US Macro data continued to impress, however September does bring a large number of Macro risks to the table including the Tapering debate; Fed Chairman continuity; US Debt Ceiling; German Elections and ongoing tensions in Syria.

Pengana Australian Equities Fund returned 2.27% for August with a cash holding of 26% at month-end. The largest positive contributors to the month's performance were McMillan Shakespeare (validating the Fund's decision to acquire additional shares during the strong reaction to the proposed regulatory change), Seven West Media, Resmed, Woolworths and Ainsworth Gaming.

Updated AFM Fund Reviews were also completed on the following funds this week:

The Bennelong Long Short Equity Fund is a research driven, market and sector neutral, "pairs" trading strategy investing primarily in large cap stocks from the ASX/S&P100 Index, with a ten year track record and annualised net returns of over 20%. Since inception in January 2002 the Fund has had positive annual returns each year, including an 11.95% return in 2008 and 20.6% in 2011, both of which were negative years for the ASX200. The consistent returns across the investment history indicates the Fund's ability to provide positive returns in volatile and negative markets and significantly outperform the broader market. 

For something completely different -  things you need to know when you are in leadership.

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

BENNELONG LONG SHORT EQUITY FUND

Attached is our most recently updated Fund Review on the Bennelong Long Short Equity Fund.  

The Fund is a research driven, market and sector neutral, "pairs" trading strategy investing primarily in large cap stocks from the ASX/S&P100 Index, with a ten year track record and annualised net returns of over 20%. Since inception in January 2002 the Fund has had positive annual returns each year, including an 11.95% return in 2008 and 20.6% in 2011, both of which were negative years for the ASX200. The consistent returns across the investment history indicates the Fund's ability to provide positive returns in volatile and negative markets and significantly outperform the broader market.

Sean Webster

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESFund Review: Bennelong Long Short Equity Fund (pdf format)

ASIC has released the finding of its 2012 survey of the potential for hedge funds in Australia to pose a systemic risk to financial markets, with the conclusion that there appears to be no such risk at the present time.

The survey also found that the largest funds (those with over $500 million in assets) had relatively low levels of borrowing and leverage.

However it should be noted that the survey only covered a small number of funds based on the $500m cutoff in assets, and that these represented just 42% of the total assets in the sector as at September 2012.

ASIC's survey estimated that over half of Australia's hedge funds manage less than $50 million, and only 8% manage more than the $500 million cutoff. Furthermore the sector as a whole represented just 3% of the total $2.13 trillion managed by the Australian funds management industry.

ASIC's full report is available here.
 

ATTACHED FILESASIC Report 370 (pdf format)

Only one day left of the blandest, longest and most tedious election campaign ever.  This one's been going on since January 30^th this year, when then PM Julia Gillard called the election for September 14^th - a record 32 weeks of campaigning. 

Of course the real reason for the abnormally long campaign was that it meant her minority government was protected from the risks of a by-election in the meantime, and therefore could maintain power a tad longer.

If we have one thing to thank Kevin Rudd for when he finally plucked up the ticker to depose Gillard it must be that he shortened the campaign to 31 weeks.  Phew!

We hope that the incoming government will at least win a clear mandate in both houses to allow them to govern in their own right, and come what may be judged on their record, not that of a hotchpotch of deals and compromise.  That said one of the reforms we'd love to see is some real clarity on implementing Mark Johnson's recommendations from his November 2009 report into creating Australia as a Financial Centre.

There's no doubt Australia has the talent and the governance for its financial services and fund management sector to compete on the world stage. While the geographic realities make it difficult, the taxation environment makes it nearly impossible to do so.

It's too easy to sit back and let Australia's ever growing superannuation pool support the financial services industry, in the way we've let the mining industry keep the rest of the economy afloat for the past few years. Australia needs to compete on the global stage, and to do so the taxation treatment of offshore investors in local funds needs to become an incentive, not a disadvantage.

While on our soap box we were reminded this week by one fund manager that the increasing number of "My Super" products being announced by the larger super funds and financial houses will be rated by APRA based on fees, ahead of their net performance. There's nothing wrong with trying to keep fees as competitive as possible, and as transparent as possible,  but surely they are not the primary method of comparison?

EVENTS

Just a few more days until the the AIMA Hedge Fund Forum , to be held next week on Tuesday 10th September at Hilton Hotel, Sydney. For further details visit AIMA Australia's website or register here.  (This event is FREE for institutional investors).

Another upcoming event that may be of interest for Superannuation member administration and investment operation service providers is the Superannuation Fund Back Office conference coming up on 21-22 October. Visit the International Business Review Conferences website for more details.

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

Bennelong Long Short Equity Fund returned 2.27% for August bringing the since inception (January 2003) return to 21.18% p.a. achieved with a down-capture ratio over the same time of -1.91% (in other words, the fund rose 1.91% for every 1% fall in the market).

The Monash Absolute Investment Fund returned 1.40% in August with a gross and net exposure of 86%, and a portfolio Beta of 0.59. Monash remarks that the outlook driven stocks reported very strong business growth and outlook statements. These are detailed in the Manager's Month End Note.

Updated AFM Fund Reviews were also completed on the following funds this week:

BlackRock's Multi-Opportunity Fund offers broad diversification across asset classes including equities, fixed income, currencies and commodities with an attractive risk profile, having provided double digit returns since 2009 with low volatility. The current strategy has seen the Fund return only two negative months since May 2010, leading to annualised returns over the past 36 months (to July 2013) of 12.81% (ASX 200 Accumulation 8.79%), an annualised standard deviation of 1.88% (11.74%) and a three year Sharpe Ratio of 4.62, significantly outperforming targeted returns and risk.

Hedge Funds: Two strategies working in 2013, written for the Eureka Report this week, tracks the performance of all hedge fund strategies over the last 7 years.

For something completely different - if you like the Game of Thrones series, you will love the "how to vote" style of Game of Seats.

On that note, enjoy the week-end, and may the best party win - and not have to return to the polls anytime soon.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook