And now for something completely different to start with. Hedge Clippings on a Monday.

The past couple of weeks have seen two "exit" news items out of the USA which have caught the attention of the absolute return sector. Firstly CalPERS, (California Public Employees' Retirement System) a significant and longstanding hedge fund investor, decided to exit their entire $4 billion exposure to the sector, followed last week by the news that investment manager Bill Gross, frequently cited as one of the industry's gurus and a founder and 40 year veteran of PIMCO, with a total of $2 trillion in FUM had quit to join the much smaller Janus Capital Group.

As this article from Forbes explains, while CalPERS' $4 billion seems a significant chunk of capital, it represented only a small portion of the $300 billion they manage in total. If one used the Australian Future Fund's hedge fund exposure of 16% as an example, CalPERS would have to increase their allocations by a massive $44 billion to match it.

CalPERS cited fees, performance and complexity as being amongst the reasons for their exit from hedge funds, and we have no doubt all are a significant factor. But with only just over 1% of their assets allocated to any one sector, it made it difficult (and expensive) to make a significant difference to their overall performance, which incidentally hadn't been too good.

The problem comes down to the trade-off between size and performance. It has long been understood that while the majority of institutional investors' capital flows into the largest 10% of funds, it is equally accepted that this is not where the best returns are to be found.

Take Bill Gross' fund at PIMCO for example. Over the past 15 years he provided returns in the top 12% of his peers, but over the past 12 months he has lagged to be in the bottom 20%. At his new home, Janus Capital Group, he will reportedly have just $13 million in FUM, and be in a significantly better position to outperform once again.

Anecdotal evidence suggests that there were other issues in his exit from Pimco, including differences of opinion over management. While his new fund won't have the luxury of the management fees he was earning, he will have the flexibility and freedom to return to being a nimble investor, one of the key drivers of small to medium funds' out performance of their larger competitors.

It seems size isn't just important, it just matters.

Specific results received this week include the following PERFORMANCEUPDATES:

KIS Asia Long Short Fund returned -0.1% during August and 9.57% over the prior twelve months with a low volatility of 2.65%.

Results for August show the Laminar Credit Opportunities Fund returned 0.53% for a 12 month return of 9.64% (RBA Cash Rate average 2.50%) with a volatility of 0.59%.

The Auscap Long Short Australian Equities Fund returned 5.24% during August, a strong out-performance of the equity market return of 0.62%, with a 12 month performance of 44.87% and a volatility of 6.55%.

Pengana Absolute Return Asia Pacific Fund returned 0.60% in August and 7.57% for the year with a volatility of 2.85% and a Sharpe ratio of 1.72.

During August, the Totus Alpha Fund delivered 2.02% bringing the 12 month performance to 37.96% with a volatility of 15.63%.

CPD points are available for all FUND REVIEWS released this week including:

Monash Absolute Investment Fund; Microequities Deep Value Microcap Fund; Optimal Australia Absolute Trust; Alpha Beta Asian Fund

UPCOMING EVENTS:

15-17 October Grace Hotel, Sydney - Investment Performance Measurement, Attribution & Risk Management Forum will have leading experts sharing up-to-date, cutting edge ideas and insight on frontiers of recent developments in performance measurement.

21-22 Octoberin Sydney Post-Retirement Australia 2014 conference. Comprehensive two day forum for high profile cross industry participants to provide updates, insights and ongoing discussion into the key issues central to achieving optimal financial outcomes.

Friday 24 Octoberin Sydney Financial and Media Markets Charity Regatta Day out of Middle Harbour Yacht Club. Promises to be a fantastic day.

5-6 November, Grace Hotel, Sydney. Alternative Investments Conference - Investigating the rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.

This week's Now For Something Completely Different, this guy should buy a lottery ticket, he wasn't even wearing a helmet.

Best wishes for a happy and healthy week ahead,

Chris

CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy.  For more information visit www.cpresearch.org.au or contact me by email.

AIMA Australia Hedge Fund Forum - 16 September 2014: News Wrap

The AIMA Australia Hedge Fund Forum last week showcased the skill of local managers, their approach to business and their market views to local and international delegates.

Discussion also focused on how the Australian hedge fund industry can better engage with investors, and touched on the regulatory and market forces that are shaping the industry's future. Nearly 300 investors, managers and service providers attended the forum, making it the largest conference of its kind in Australia.

Highlights from the Forum included:

AUSSIES BEST IN LOCAL SHARES

• Australian hedge fund managers are "clearly" skillful in long/short Australian equities and "possibly" skillful in fixed  interest but are lagging international managers in global macro, over the past 10 years, according figures produced by Australian Fund Monitors for AIMA Australia. But, over the past five years, Australian global macro managers have performed as well as their international counterparts.

Read the entire "NewsWrap" here.

ATTACHED FILESAIMA Australia Hedge Fund Forum 2014 (pdf format)

This week saw a return of AIMA Australia's annual hedge fund conference, which under the chairmanship of Paul Chadwick took on the theme of "by the industry for the industry" for the second year in a row, and for the second year in a row saw a packed audience still in attendance well after the designated 5:30 close.

As Paul noted afterwards, the challenge now is how to run the event next year - stick to the winning formula, or try to introduce change?

Winning formulas will work while the quality of the speakers and panels remains, and this year's "fireside chat" (sans flames) with London based Keith Haydon, CIO of $14bn fund of funds FRM will be a hard act to follow next year.

Keith gave an insight into his view of the industry, blending his dry wit with the benefit of experience across a period in which there has been more than a fair share of change and turbulence. In particular his observations on the challenge of balancing manager performance with size was illuminating.

From a performance perspective managers with $500 million to $1bn provide the best returns, while balancing out the business risk of managers with less than $500m. However, according to Haydon this represents only 4% of total industry assets, with over 20% in funds with $1bn to $5bn, and 68% in funds over $5bn.

With close to 90% of FUM allocated to funds with $1 billion or more, the scraps allocated to smaller funds, which dominate the Australian landscape are hard fought for. However, this should be good news for investors in smaller funds, and Australian managers in particular, and no doubt is one of the major factors behind the outperformance of Australian equity long short managers compared with their global counterparts.

AFM's analysis of the 5 and 10 year performance of local long short funds compared with their global peers based on the Eureka Hedge Global Index shows a clear outperformance, totalling 2.54% pa over 5 years, and 2.70%pa over 10.

Statistics as we've often noted can be misleading and there could be other reasons including the dominance of Australian equity strategies amongst local long short managers, currency movements and a myriad of others. However the bottom line is that local managers have outperformed their global peers, and these local managers are predominantly in the under $1,000 billion size range.

With institutions generally unable or unlikely to be able to participate in the sweet spot the beneficiaries are local investors, be they retail, HNW, SMSF's or family offices.

Finally last night saw one of Australia's most successful managers, Regal, take out the Hedge Fund of the Year at the industry's annual awards night for their Atlantic long short fund, and followed this up by their Tasman fund winning the best market neutral fund, with Jenny Harding from Harbridge wining the award for contribution to the industry. Congratulations to all concerned, they are well deserved.

Specific results received this week include the following PERFORMANCE UPDATES:

The Monash Absolute Investment Fund returned 2.30% during August, above the Index return of 0.6%, with an annual return of 21.14% (Index 14.40%).

With overall performance at 25.92% over the last 12 months, the Microequities Deep Value Microcap Fund fell slightly in August.

Bennelong Kardinia Absolute Return Fund returned 0.56% during August bringing 12 month performance to 6.60% with a volatility of 4.27%.

With a very low volatility of 1.71% the Optimal Australia Absolute Trust returned 0.06% during August and 6.29% for the prior 12 months.

The Paragon Fund returned -1.1% during August and 39.83% for the prior twelve months with a volatility of 13.91%.

Aurora Fortitude Absoloute Return Fund returned 0.30% during August and 3.56% over the previous 12 months with a very low volatility of 0.96%.

The Cor Capital Fund  returned 0.10 % during August bringing 12 month performance to 1.93 percent with a volatility of 3.62%.

With a volatility of 4.18%, the Alpha Beta Asian Fund returned 0.90% during August and 10.62% over the prior 12 months.

UPCOMING EVENTS:

15-17 October Grace Hotel, Sydney - Investment Performance Measurement, Attribution & Risk Management Forum will have leading experts sharing up-to-date, cutting edge ideas and insight on frontiers of recent developments in performance measurement.

21-22 October in Sydney Post-Retirement Australia 2014 conference. Comprehensive two day forum for high profile cross industry participants to provide updates, insights and ongoing discussion into the key issues central to achieving optimal financial outcomes.

Friday 24 October in Sydney Financial and Media Markets Charity Regatta Day out of Middle Harbour Yacht Club. Promises to be a fantastic day.

5-6 November, Grace Hotel, Sydney. Alternative Investments Conference - Investigating the rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.

This week's Now For Something Completely Different, Sunday is Leonard Cohen's 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 the Chelsea Hotel.

Best wishes for a happy and healthy weekend,

Chris

CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy.  For more information visit www.cpresearch.org.au or contact me by email.

Hedge Clippings has endured a challenging (or should that be frustrating) week. As usual the first frustration came out of the ongoing two-step being danced in Canberra, where the government proudly announced it had delivered on at least one election promise, that of repealing the mining tax.

Of course it can only do anything at present with the approval of Clive Palmer and his PUP colleagues in the Senate, and in this case it seemed as if the trade off was the deferral for 7 years of any increase in the Superannuation Guarantee Levy or SGL. At the present time the SGL is 9.5% of every employees' wages or salary, and is levied as a tax on the employer, not the employee.

While there are plenty of arguments as to the rights and wrongs of the SGL and how it is levied, who should pay, and the cost of superannuation tax benefits to the federal budget, it is hard to argue about the logic of a system designed to cover the retirement benefits of all workers, given that one of the major expenditure items in the Federal budget is the cost of the aged pension.

It is also widely accepted by most (although possibly not the Federal Treasurer) that even after 40 years of the SGL at 9.5%, the retirement benefit for most employees will be insufficient to cover their income needs in retirement, particularly given ever extending life expectancies. Figures published in an article on news.com.au today indicate the average 50 year old male currently earning $79,700 can expect to receive an income of $27,600 when he turns 70 in 20 years' time.

Hardly enough one would have thought, and therefore any encouragement (whether it be using carrot or stick) should be applauded rather than the current government's policy of deferring or reducing even this meagre ration.

Maybe one of the reasons that Treasurer Hockey doesn't seem to think this is important is that the same article indicates that when he leaves Federal Parliament he will be in line for a pension of at least $270,000 a year.

Who says the age of entitlement is over? None other than the Treasurer of course!

The other challenge or frustration this week was altogether different, and altogether more enjoyable, having attended yet another Bob Dylan concert (my fifth or sixth from memory, but the ones I was at in the late 60's are for some strange reason rather vague). Bob is one of my favourite artists, sadly not one of the world's greatest communicators. Having said that, this was one of his best performances I had seen, with his rendition of his classic "Blowin' in the Wind" for his final number perfect for current times, just as it was way back in 1963.

Specific results received this week include the following PERFORMANCE UPDATES:

The Auscap Long Short Australian Equities Fund returned 2.95% during July and 43.54% for the prior twelve months with a volatility of 6.30%.

Returning 24.47% for the year ended July 2014, the Avenir Value Fund returned -1.12% during July.

Pengana Absolute Return Asia Pacific Australian Fund returned 1.18% during July and 8.03% for last 12 months with a volatility of 2.88%.

With a volatility of 8.95% the Nanuk Global Alpha Fund returned -1.26% in July and 17.01% for the prior 12 months.

The Supervised High Yield Fund returned 0.77% during July and 7.17% over the previous 12 months with a very low volatility of 0.72.

AFM are now accredited by the Financial Planning Association of Australia to issue CPD points for FUND REVIEWS.
This week's updated reviews include:

Aurora Fortitude Absolute Return Fund

Read the most recent Fund Review for any of our research clients, and then answer 5 straightforward questions, these are presented in multiple choice format. An 80% or more success score will provide 0.5 CPD points, with a certificate provided as proof of completion. There is no charge for this service.

UPCOMING EVENTS:

Tuesday 9 September in Brisbane , from 12pm to 4.30pm - ARRIA is hosting a further round table discussion, providing a valuable opportunity to meet with like-minded advisers. Free to Financial Advisors.

Tuesday 16 September in Sydney AIMA Australia's Hedge Fund Forum - and event by the Industry for the industry featuring quality Australian and international speakers.

15-17 October Grace Hotel, Sydney - Investment Performance Measurement, Attribution & Risk Management Forum will have leading experts sharing up-to-date, cutting edge ideas and insight on frontiers of recent developments in performance measurement.

21-22 October in Sydney Post-Retirement Australia 2014 conference. Comprehensive two day forum for high profile cross industry participants to provide updates, insights and ongoing discussion into the key issues central to achieving optimal financial outcomes.

Friday 24 October in Sydney Financial and Media Markets Charity Regatta Day out of Middle Harbour Yacht Club. Promises to be a fantastic day.

5-6 November, Grace Hotel, Sydney. Alternative Investments Conference - Investigating the rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.

This week's Now For Something Completely Different and in keeping with our musical theme... I imagine it would be surprising to be shopping for groceries and find yourself in what might appear to be a scene from an opera, or Shopera as some might say. Well, I thought it was from an opera, but it's not. If anyone else is interested, the history of the song is here.

Best wishes for a happy and healthy weekend,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy.  For more information visit www.cpresearch.org.au or contact me by email.

There is now sufficient July performance data in from fund managers to be able to make some meaningful comments regarding performance not only for July but also year-to-date and over the past 12 months.

The ASX 200 Accumulation Index rose 4.4% in July to take YTD performance to 7.57%, more than the first six months of the year put together. Against that, with 74% of results in to date, equity base funds rose 2.14% in July to take year-to-date returns to 4.44% which in the current environment is a reasonably significant underperformance.

Over 12 months the performance differential is not so stark, with equity based funds returning 13.82% against the ASX 200 Accumulation Index which has risen 16.54%. Before the disbelievers jump on these numbers as proof that absolute return and active managers fail to justify their fees, it's worth looking at the distribution of returns both within individual funds and between various strategies.

Taking individual funds first, in July the best performing fund across all strategies (Paragon) rose 12.5%, while the worst fell 8.8%. Year-to-date the best performing fund has returned 37%, and the worst -34%. Over 12 months the best performing fund has returned 101%, and the worst -24%.

While only 10% of funds in the AFM database outperformed the ASX 200 in July, that figure rises to 16% year-to-date and just over 30% over the past 12 months.

Returns by strategy are less diverse, with funds within the Equity 130/30 group averaging 3.57% in July, 10.22% year-to-date and 26.64% over the past 12 months to be the top performing strategy overall three periods. On the negative side Global Macro funds which have been struggling for some time on the back of government intervention fell 1.13% in July, while managed futures trailed the pack at -2.27% year-to-date, and currency funds the worst of the 12 months at -2.07%.

While Equity 130/30 has certainly been the standout there remains a significant spread of distribution between the underlying funds within the strategy, indicated by 12 month performances with the best up 50%, while even the poorest managed a pretty impressive 23%.

All this goes to prove what a diverse group of underlying assets, managers, funds, strategies and skills go to make up what some still choose to lump into an overall category of "alternatives".

Obviously research is an essential key to the puzzle, although as I heard at a presentation from a fund manager this week "you can't buy last years returns". However as we've seen in the media even the best research can come unstuck as shown by the problems with Van Eyk's Blueprint Funds, four of which have had redemptions frozen.

Hedge Clippings has to admit to not being across the details, why's and wherefores in this case, but they will  no doubt emerge over time. However it does indicate that conflicts of interest in the financial services sector, whether tested or not, are not restricted to the well published retail advisory space. Rightly, or or probably wrongly, the whole sector suffers from potential conflicts at every turn,, and it will be interesting to see if the final report of David Murray's Financial System Inquiry will come up with a any solutions to the problem.

Personally we doubt it. The system is too entrenched, leaving it to a combination of regulation, and personal ethics to resolve the problem.

Specific results received this week include the following PERFORMANCE UPDATES:

The Forager Australian Shares Fund recorded an out-performance of the Index 2.30% (Fund 6.70%) during July and 13.73% for the previous 12 months.

Totus Alpha Fund returned 3.55% during July with an annual return of 37.86% and a volatility of 15.62%.

With a standard deviation of 8.64%, the Morphic Global Opportunities Fund returned 11.34% over the prior 12 months.

The Alpha Beta Asian Fund returned 1.02% during July and 10.61% for the previous 12 months with a volatility of 4.18%.

AFM are now accredited by the Financial Planning Association of Australia to issue CPD points for FUND REVIEWS.
This week's updated reviews include:

Microequities Deep Value Microcap Fund, Bennelong Kardinia Absolute Return Fund, Optimal Australia Absolute Trust and also Insync Global Titans Fund

Read the most recent Fund Review for any of our research clients, and then answer 5 straightforward questions, these are presented in multiple choice format. An 80% or more success score will provide 0.5 CPD points, with a certificate provided as proof of completion. There is no charge for this service.

UPCOMING EVENTS:

Tuesday 26 August in Melbourne and also Tuesday 9 September in Brisbane , from 12pm to 4.30pm - ARRIA is hosting a further round table discussion, providing a valuable opportunity to meet with like-minded advisers. Free to Financial Advisors.

Wednesday 27 - Friday 29 August Money Management's Platforms and Wraps conference in the beautiful Hunter Valley, NSW. Covers the latest industry trends and innovation, while also exploring technology iniatives, client segmentation, data ownership, analytics, marketing and distribution, regulatory reform and consolidation. Pre-conference golf and wine tour of Hope Estate included. Special rate for fundmonitors.com members.

Tuesday 16 September in Sydney AIMA Australia's Hedge Fund Forum - and event by the Industry for the industry featuring quality Australian and international speakers.

If you would like your Event listed in our calendar, please contact us.

This week's Now For Something Completely Different is a gentle reminder that today is Daffodil Day. Every dollar raised goes into cancer research, something that touches us all.

Best wishes for a happy and healthy weekend,

On that note, have a good weekend.

Best wishes,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy.  For more information visit www.cpresearch.org.au or contact me by email.

We are pleased to announce the release of our latest products, Prism Select and OLIVIA123.

Australian Fund Monitors launches Prism Select and OLIVIA123 as an alternative to ASX'S mFUND SERVICE.

Australian Fund Monitors Pty Limited (AFM), a specialist provider of research on actively managed, absolute return and hedge funds, has thrown down the gauntlet to the Australian Securities Exchange's new mFund service.

AFM has launched the new Prism Select portal for self-directed investors or their advisors to enable them to research and apply for unlisted managed funds, and providing a superior research service to the ASX.

Prism Select has launched with comprehensive information and performance on a range of 14 boutique funds, enabling investors to compare and research each one.

AFM believes Prism Select's research offering is superior to mFund's, as it includes a number of wholesale funds not available through the mFunds service, contains a significantly greater depth of information and detail on each fund, and finally provides the ability to apply and deal directly with their chosen fund without having to contact a stockbroker.

AFM was established in Sydney in 2006 and is a specialist provider of research and information on actively managed funds, including hedge and absolute return funds, maintaining a database (www.fundmonitors.com) that contains over 300 funds either managed from or available in Australia.

Going forward it is expected many of these funds will sign up to Prism Select, and AFM's new online application process, OLIVIA123, which cuts down the time taken and mistakes made when applying for managed funds.

AFM believes that mFund is a welcome industry advance, but is mainly directed at retail investors, with only basic information provided on each fund. The investor is then referred to a limited group of five stockbrokers, with which they have to establish an account, before placing their order. While it has the convenience of the ASX settlement service, the range of funds remains limited to 12 Managers and 44 funds at this stage, while the information on each fund, and its strategy and performance metrics is minimal.

Like mFund, Prism Select does not provide financial advice, but it does provide investors with comprehensive, verifiable and in-depth information, along with up to date performance and risk data on each fund, assisting investors and their advisors to make informed and well-considered investment decisions.

All funds available on Prism Select are contained in their own "kiosk" each containing a wide range of factual and qualitative information, including the fund manager's details, the fund's investment strategy, its performance history, advanced analytics, and investment terms and fees, all in one place.

Users of Prism Select can also download and view copies of the managers' recent performance reports and offer documents, which coupled with AFM's own Fund Reviews provide investors with a powerful research and information tool.

OLIVIA123 - on line applications as easy as one, two, three.

Prism Select also provides access to each fund's offer documents and application forms through OLIVIA123, an online application service developed by AFM which provides a customised and interactive application form for each fund, reducing the time and frustration often experienced by investors when completing paper based application forms, and cutting the errors and omissions which often delay the processing of their applications.

OLIVIA123 consists of three modules - Data Collection, Identity Verification (AML&KYC), and Online Execution - assisting fund managers and their administrators by reducing the time and costs of processing paper based applications, including compliance with new anti-money laundering legislation.

OLIVIA123's online, interactive system is estimated to cut the time taken to complete and process a paper based application by up to 70 per cent.

Both Prism Select and OLIVIA123 will be rolled out progressively as additional funds are added to the portal, which will also provide "white labeling" and licensing functions for advisors, fund managers and fund administrators.

There is no cost to the user for access to Prism Select. Each Fund Manager pays a monthly fee covering a range of hosting services and research, and contributes a fixed portion of their management fee for transactions processed through OLIVIA123.

For further information visit www.prismselect.com or email [email protected].

Chris Gosselin
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

This week Hedge Clippings attended the ARRIA Round Table in Sydney. ARRIA, for those not aware of the organisation, stands for the Association of Real Return Investment Advisors and acts as a resource for independent financial advisors looking for ways to improve returns and diversify risk for their clients.

It was the third such ARRIA Round Table event we have attended, and it was pleasing to note the expanding numbers of attendees, and as a result the level and depth of discussion and debate that ensued.

The points we tried to make at the meeting were twofold:

Firstly, what's in a name? It doesn't really matter what they're called - real return, absolute return, alternatives, or hedge funds - the end objective of each is to provide an attractive risk adjusted return, and appropriate diversification to underlying markets or asset classes.

The second point was that there's no silver bullet when choosing the ideal asset class, strategy or product as the universe is infinitely variable, and certainly not homogenous, as are the end investors' needs and objectives. Having said that we do believe that research, research and more research is the key to understanding any investment product's strategy and performance, rather than some simplistic rating or label applied to a product for marketing and distribution purposes.

Inevitably the subject of fees raised its head, as it so often does, with the usual opinions and concerns. Tim Farrelly, probably quite correctly, claimed that over the past half century or so the wealth management industry (and specifically hedge funds) had done more to improve the wealth of those in the industry than the wealth of the investors for whom they were investing.

In our opinion that misses the point about research and manager selection. There are undoubtedly fund managers that don't deliver value, just as there are some who deliver excellent value. Bundling them into one basket and avoiding them all risks reverting to index or ETF type products that provide long term market returns, complete with the market's volatility, albeit at very low fees. The solution comes from doing the research, both quantitatively on performance and risk, and qualitatively on the product, manager, strategy and processes.

Following on from last week's Hedge Clippings, we referred to fund manager Jonathan Rochford's article "The Great Fee Debate - Resetting Manager and Investor Expectations". What did occur to us in this debate is the structure and alignment of interest that fees can create - or for that matter obscure - depending on the strategy, structure and size of the fund involved.

There is a strong argument that funds with assets under management (AUM) well into the multi billions do not require management fees of over 1% in addition to a performance fee of 10% or 20%. Without necessarily singling them out, in Magellan's results announced today, they indicated that the total capacity of their combined funds was potentially $50 billion. Whilst Magellan's average management fee might well be lower than their stated 1.35%, this plays into Tim Farrelly's argument pretty easily.

It is encouraging to note that some smaller managers, such as Monash Investors, are proposing to lower their management fee as AUM increases, and will achieve their alignment of interest with investors through co-investment and performance incentives.

There's a myriad of why's and where fore's in the great fee debate, including the fees on LIC's, structure and others, not forgetting of course that if the manager is performing to expectations, why shouldn't they benefit from the successful business they've built? There are few complaints about the profits made in other industries, with the exception perhaps of banking, but let's not go there.

Specific results received this week include the following PERFORMANCE UPDATES:

Bennelong Kardinia Absolute Return Fund returned 1.07% during July bringing annual performance to 7.02% with a volatility of 4.29%.

Returning a performance result of 12.50% in July (Index 4.40%), the Paragon Fund brings annual returns to 43.65% (Index 16.54%).

The Optimal Australia Absolute Trust returned 1.03% during July and 6.37% for the previous twelve months with a standard deviation of 1.69%.

AFM are now accredited by the Financial Planning Association of Australia to issue CPD points for FUND REVIEWS.
This week's updated reviews include:

Supervised High Yield Fund, Alpha Beta Asian Fund and also Monash Absolute Investment Fund

Read the most recent Fund Review for any of our research clients, and then answer 5 straightforward questions, these are presented in multiple choice format. An 80% or more success score will provide 0.5 CPD points, with a certificate provided as proof of completion. There is no charge for this service.

UPCOMING EVENTS:

Wednesday 27 - Friday 29 August Money Management's Platforms and Wraps conference in the beautiful Hunter Valley, NSW. Covers the latest industry trends and innovation, while also exploring technology iniatives, client segmentation, data ownership, analytics, marketing and distribution, regulatory reform and consolidation. Pre-conference golf and wine tour of Hope Estate included. Special rate for fundmonitors.com members.

Tuesday 26 August in Melbourne and also Tuesday 9 September in Brisbane , from 12pm to 4.30pm - ARRIA is hosting a further round table discussion, providing a valuable opportunity to meet with like-minded advisers. Free to Financial Advisors.

If you would like your Event listed in our calendar, please contact us.

This week's Now For Something Completely Different we say a sad farewell to Robin Williams, who made us laugh, he made us cry and bought so much joy to the world. Now go out and make your life spectacular, like he did.

Best wishes,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy.  For more information visit www.cpresearch.org.au or contact me by email.

This week's Clippings is going to attempt to multi-task, (not your scribe's strongest point) or at least cover a number of different topics. Feedback (positive or negative) is welcome.

Firstly AFM's Research Manager, Sean Webster has taken a look below the surface of yesterday's poor employment numbers (6.4% against the market expectation of 6.1%) which helped trigger a fall of almost 1c in the Aussie dollar, and led to further expectations of the RBA easing official rates by Christmas. RBA Governor Glen Stevens came out today and tried to pour cold water on that view, but it would certainly seem that any rate rise might be further off than previously expected.

Sean's piece, 'Lies, damn lies and statistics' is not suggesting there was any fiddling of the books, just that the ABS has made some significant changes to its data collection and survey methodology, and yesterday's numbers are the first example of the resultant numbers. For those wondering why the numbers were such a surprise it makes excellent reading.

What might also have impacted the unemployment rate was the never ending budget saga, which three months after budget night is still being debated in the media at least, as debate in parliament has been interrupted by Federal MP's winter overseas holidays (apologies, "fact finding tours"). Business hates uncertainty, almost as much as a bad budget. With the final budget outcome yet to be determined by negotiation with the minor parties in the Senate, including the uncertain Clive Palmer, business confidence and patience might be running as low as Treasurer Joe Hockey's.

Elsewhere Sean also unearthed this excellent article entitled The Great Fee Debate - Resetting Manager and Investor Expectations. If there's one subject guaranteed to generate ill feelings, let alone a debate, it is the quantum and structure of fund manager's fees. We have raised this issue before, and it was front and centre in David Murray's interim FSI report a few weeks ago, but Jonathan Rochford of Narrow Road Capital has some excellent points to make - most of all his number one factor when choosing a manager: Integrity. At AFM we often ask ourselves a rhetorical question when speaking with managers: Do they see managing other people's money as an opportunity, or a responsibility? Only after that can one analyse the value for money the Manager is providing.

Finally ASIC has today released its clarification on how it will apply the wholesale investor test to self-managed superannuation funds (SMSF's).  As ASIC says: "This has long been an area of ongoing legal uncertainty" (and therefore probably quite a lucrative area of advice for the legal fraternity) where SMSF's were not necessarily judged to be wholesale investors even though their trustees were.

ASIC's revised approach can be viewed here, and as the previous approach (QFS 150) was issued ten years ago, and the SMSF sector has since grown dramatically to number over 500,000 funds, representing over one third of Australia's retirement pool by value, the clarity will be welcomed. As we read it, ASIC's new approach means that it is the Trustee's status as a wholesale investor which determines the wholesale status of their super fund. Maybe we should get a legal opinion on that. Or two just to be sure.

Specific results received this week include the following PERFORMANCE UPDATES:

Microequities Deep Value Microcap Fund recorded a return of 5.94% during July and 34.46% for the previous twelve months.

Returning a performance result of 3.20% in July, the Monash Absolute Investment Fund is now at 20.24% over the prior year with a volatility of 8.62% in line with the Index.

AFM are now accredited by the Financial Planning Association of Australia to issue CPD points for FUND REVIEWS.
This week's new reviews include:

Optimal Australia Absolute Trust, Aurora Fortitude Absolute Return Fund and also Insync Global Titans Fund

Read the most recent Fund Review for any of our research clients, and then answer 5 straightforward questions, these are presented in multiple choice format. An 80% or more success score will provide 0.5 CPD points, with a certificate provided as proof of completion. There is no charge for this service.

UPCOMING EVENTS:

Tuesday 12th August 2014, from 12pm to 4.30pm - ARRIA is hosting a round table discussion in Sydney, providing a valuable opportunity to meet with like-minded advisers. No cost to participants. Also in Melbourne on Tuesday 26 August and Brisbane on Tuesday 9 September.

Wednesday 13 August 2014 - Perth and Thursday 14 August - Melbourne: Financial System Inquiry - Public Forums to raise issues and discuss the inquiry. Brisbane and Sydney next week. Click here to see dates in your capital city and register.

Thursday 14th August in Sydney: AIMA Australia Education Forum. The forum will discuss regulatory, tax and other issues, as well as current observations and insights associated with a range of hedge fund investment products, including Australian unit trusts, Cayman funds, UCITS and listed investment companies. It is a "must attend" event for hedge fund managers reviewing their current products or considering development of new products.

14-15 August in Sydney: Alternative Investments Conference - Investigating the rise and rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.

Wednesday 27 - Friday 29 August Money Management's Platforms and Wraps conference in the beautiful Hunter Valley, NSW. Covers the latest industry trends and innovation, while also exploring technology iniatives, client segmentation, data ownership, analytics, marketing and distribution, regulatory reform and consolidation. Pre-conference golf and wine tour of Hope Estate included. Special rate for fundmonitors.com members.

If you would like your Event listed in our calendar, please contact us.

This week's Now For Something Completely Different should either put to rest the argument that children are not influenced by what they see on TV, or that cats are more intelligent than dogs. Enjoy, and wishing you a safe and happy week-end.

Best wishes,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy.  For more information visit www.cpresearch.org.au or contact me by email.

Recently the news has been dominated by horrors and disasters in the Ukraine and Gaza, and an emerging global health threat from the Ebola virus in West Africa, none of which are necessarily relevant to Financial Markets or "Hedge Clippings", except we have been surprised at the lack of market volatility resulting from them. Maybe the markets have become hardened or become immune to the daily dose of visual horror we are presented with, or maybe they just won't affect the bottom line enough to matter.

Earnings are a different matter, particularly when the majority of experts have been talking of an over-priced market for some months, with investors also seemingly immune from the warnings. At first call that would seem to have changed overnight with the start of reporting season, as we suspected it might, with significant falls all round, with the exception of Abu Dhabi (+0.99%) and Dubai (+1.99%).

As a the time of writing the Australian market, although generally judged to not be as overvalued as the US, is down around 1.5%, having just completed its second best month for the past year. Timing is everything, and most fund managers will have closed July's books thankful to have booked a positive return, and at least happy they have another 30 days of the month to manage August's performance.

You will note we're not falling into the trap of predicting if this is an overdue correction, and therefore a buying opportunity, or the start of a more serious sell off as Tapering finishes tapering, and rates begin to rise. Ask me in a month or two's time and I should be able to give you a better idea!

On other fronts it's been thankfully quiet in Canberra, while David Murray's Financial System Inquiry has announced a series of upcoming public forums in four capital cities (not quite sure why Adelaide and Hobart missed out, Canberra I do understand) open for anyone to attend, to hear about the Inquiry, ask questions of the Committee, and raise issues for examination by the Inquiry. Those interested can register online or download two summaries of the FSI Interim Report from our library, one from Deloitte, and one from Ernst & Young.

Final round submissions to the Inquiry close on 26^th August.

Prism Select and OLIVIA123

Closer to home, this week Australian Fund Monitors released two exiting new products, Prism Select and OLIVIA123.

Prism Select is an information only site which provides details on a small group of funds from our database, with significantly greater depth of information than available on AFM. However, using OLIVIA the significant factor is that investors have the ability to apply for each fund online, which makes completing lengthy and confusing paper based forms a thing of the past.

OLIVIA stand for "On Line Investor Verification & Interactive Applications". That's a mouthful, so OLIVIA seemed much easier.  In fact we believe OLIVIA makes applying for a managed fund as easy as One, Two, Three.

There's no cost to investors, but they'll save time and effort, and OLIVIA includes an online AML and KYC module to confirm their identity in real time. We can't be sure, but we believe OLIVIA is not only a first of its kind in Australia, but also the world.

Should you have any questions please visit the site, or contact us for further details.

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

The Cor Capital Fund returned 7.82% for the 12 months to 30 June 2014 with a volatility of 5.85% and the one month return is 0.76%.

Laminar Credit Opportunities Fund returned 1.09% during June and 12.20% over the previous 12 months as compared to the RBA cash rate over that time of 2.54%.

Performance for the KIS Asia Long Short Fund was 0.95% during June and 11.89% for the previous 12 months with a low volatility of 2.69%.

The Forager Australian Shares Fund returned -0.15% during June and 17.72% over the year-ended June 2014 with a volatility of 11.48%..

Pengana Absolute Return Asia Pacific Australian Fund returned 1.04% during June and 7.93% for the  prior 12 months with a low volatility of 2.86%.

FUND REVIEWS released this week include:

Morphic Global Opportunities Fund and also Microequities Deep Value Microcap Fund

FUTURE EVENTS:

Tuesday 12th August 2014, from 12pm to 4.30pm - ARRIA is hosting a round table discussion in Sydney, providing a valuable opportunity to meet with like-minded advisers.

Wednesday 13 - Wednesday 20 August: Financial System Inquiry - Public Forums to be held in Perth, Melbourne, Brisbane and Sydney. Click here to see dates in your capital city.

Thursday 14th August in Sydney: AIMA Australia Education Forum. The forum will discuss regulatory, tax and other issues, as well as current observations and insights associated with a range of hedge fund investment products, including Australian unit trusts, Cayman funds, UCITS and listed investment companies. It is a "must attend" event for hedge fund managers reviewing their current products or considering development of new products.

14-15 August in Sydney: Alternative Investments Conference - Investigating the rise and rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.

If you would like your Event listed in our calendar, please contact us.

On that note, I hope you have a safe and happy weekend.

Best wishes,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy.  For more information visit www.cpresearch.org.au or contact me by email.

This week's release of the interim report of David Murray's Financial System Inquiry (FSI) was a mixture - part interim report, and part seeking further feedback and comment from interested parties. At 460 pages it has, or will, take some time to go through the complete document, but our initial impression is that the final report will be a major influence on the direction of the financial system, including superannuation for some time to come.

Courtesy of modern technology and the Internet (which the report itself focused on) the presentation and ease of understanding the report was a breath of fresh air. While not everyone might agree with all the directions it is going in, one has to be impressed by the quality of its scope, coverage, and production.

Distilling all 460 pages (even if I had read them all) is not the purpose of Hedge Clippings, so we will just focus on some specific areas of interest. The main one to us is Australia's superannuation system, currently around $1.8 trillion and forecast to grow to 7 or $8 trillion by 2030 according to a recent report from Deloitte. The FSI interim report inevitably spent some considerable effort on superannuation, partly in the area of fees, and also flagging that the final report will have a fair amount to say about superannuation's retirement phase, as opposed to the accumulation phase which seems to be the focus of so much attention.

Firstly the fees. The FSI points out that while the total superannuation pool has grown dramatically over the past 20 years, partly as a result of time, and partly as a result of the SGL levy rising from 3% to 9%, fees as a percentage of total funds has hardly budged. The interim report estimates that whilst one of the largest superannuation systems in the world, it is also one of the most expensive by a factor of two or three times, and that a reduction of around 0.4% in fees would save superannuation members a total of $7 billion a year at current levels.

Given Deloitte's forecast, a simple calculation suggests that figure will be closer to $30 billion a year by 2030 unless competitive pressures (or legislation?) come to bear.

As we are normally at pains to point out, fees are one thing, but net performance drives the bottom line return. Whether net performance, or choice and a preference for being in control of one's own retirement destiny is the cause for SMSF's to be 35% of the total superannuation pool is debatable, but self-managed super funds, while not impervious to fees, would from our experience seem to be far less fee focused than their institutional counterparts.

The FSI also put considerable focus on potential changes or implications to the retirement phase of superannuation. At the current time, and in fact since inception, the pointy end of superannuation has been contributions, returns, and fees in the accumulation phase covering the time up until retirement. David Murray's interim report suggests, correctly in our view, that as the objective of superannuation is to provide for the retirement phase, there should be a greater focus on how the retiree's final superannuation balance is handled.

Given increasing longevity and an ageing population it would seem illogical to force people to save for 40 or 45 years of their working lives, only to allow them to take a lump sum in the hope of carrying them through the next 20 or so years of retirement. We are obviously not aware of how the final report will come down on this, but it would seem that the recommendation might fall somewhere between incentive (the carrot) and legislation (the stick) to increase the focus on annuity style incomes over the longer term.

While they're at it they may want to consider either a carrot or stick approach to encouraging an increased allocation of the superannuation pool to infrastructure assets. Both have a long term timespan of 30 to 40 years, and infrastructure should be able to provide the necessary steady returns without the volatility of equities and other financial markets.

Our focus on the superannuation aspects of the FSI are not meant to diminish the importance of other areas the report, including the quality of financial advice, and Australia's dependence on overseas capital. We'll leave that to others, or another day.

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

The Nanuk Global Alpha Fund returned 1.16% during June, with 12 month performance coming in at 14.83%.

Pengana Australian Equities Market Neutral Fund returned 1.8% during June.

Performance for the Aurora Fortitude Absolute Return Fund was -0.31% during June, its first negative month since January 2013.

Avenir Value Fund returned 0.22% during June, a month in which the Global Equity Index fell -0.76%. The Fund's financial year performance was 30.04% (Index 17.87%)..

Performance for the Insync Global Titans Fund over the 2014 financial year closed at 10.70%.

FUTURE EVENTS:

14-15 August in Sydney: Alternative Investments Conference - Investigating the rise and rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.

If you would like your Event listed in our calendar, please contact us.

And so to something completely different: on what would have been his birthday today here are 7 things we can learn from Nelson Mandela's life. Seven pretty important principles but in my world there's one that rises above them all: Happy Wife, Happy Life!

On that note, I hope you have a safe and happy weekend.

Best wishes,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy.  For more information visit www.cpresearch.org.au or contact me by email.