Alessandra Tocco, managing director and global head of J.P. Morgans Capital Introduction Group, has worked with some notable figures in the hedge fund industry during her career. Starting out fresh from University, Tocco worked under Ken Tropin, then senior vice president at Dean Witter Reynolds, now head of Graham Capital Management, a $6.8 billion hedge-fund. 17 years later at Bear Stearns, she worked under the tutelage Lou Lebedin, now co-head, prime brokerage at J.P. Morgan and Bill Ullman, then senior managing director in the Prime Brokerage Department at Bear Stearns, now founder of Right Wall Capital.
Toccos move towards capital introduction came after 17 years at Dean Witter/Morgan Stanley. I was with Morgan Stanley Dean Witter for 17 years. In my last role, I managed the due diligence effort within the managed futures business. It was around September 2001 when I decided to make a change and moved to ABN AMRO to become a director in the capital introduction team.
In 2003, ABN AMRO was purchased by UBS, and Tocco moved to Bear Stearns as head of the U.S. capital introduction team. After a tumultuous few years after the purchase of Bear Stearns by J.P. Morgan, and the collapse of rival Lehman Brothers, Tocco rose to global head of the cap-intro business.
In 2010, as the dust settles, Tocco has been busy looking for new managers. Of the many criticisms levelled at the hedge fund industry, one has been the level of talent. According to Mark Kary, ex-chief executive of Polar Capital, the hedge fund industry never deserved to reach close to $3 trillion in its 2007/2008 heyday. This went from a $400 billion business to a $3 trillion business in the space of seven years and I just dont think theres enough talent around to be able to do that, he said at a Reuters conference in 2009.
While a considerable amount of talent saw their hedge funds collapse in 2009, Tocco is confident that there are worthwhile managers waiting to make their mark. We are beginning to see some high quality mangers coming to market. As part of the J.P. Morgan Capital Introduction event series, we hosted a breakfast this week in New York for a new launch. We had approximately 110 investors including CIO and other decision makers present, which was quite surprising for August, she says.
There are also changes on how investors use hedge funds. Tocco notes that pension funds are far more likely to go consultants for advice, after the collapse of Lehman Brothers and the Maddof Fraud. This increase in analysis also matches investors desire for increased due diligence and transparency. But nothing is free, and such improvements in operational risk analysis come with a price, yet according to Tocco: We have not seen an increase in costs. Based on feedback from our 2010 Institutional Investor Survey, respondents reported they are receiving a reduction in fees, which is not in line with what many hedge fund managers are saying.
This contradiction is understandable. In one memorable concerning private equity fees Christopher Ailman, chief investment officer of the California State Teachers’ Retirement System said: It’s like Moses brought down a third tablet from the Mount, and it said ‘2 and 20. Although hedge fund managers may want to hide from the world the level of fee discounts they are giving investors, managers are keen to keep fees low to attract new clients. Using the database of Strategic Insight a fund research and consulting firm, the average management fee of 1008 European hedge funds with over $141.7 billion assets under management, came to just 1.36%.
Historically, fees have been in freefall for the past 20 years. The only thing I can tell you is when I first started in this business I saw fees of 6/20, and that was more common than you can imagine, says Tocco. Then certain funds went to 4/15, or 3/20. Then there was a pressure on fees after a lack of performance in the mid-90s, and 2/20 became standard.
One way to circumnavigate the potential fiscal burden that more active investors and increased regulation will bring is to invest in UCITS structures. Newcits, or hedge funds that comply with UCITS guidelines, have stirred up excitement in the fund industry and the media. Much of the demand for Newcits comes from investors bound by quantitative restrictions, with a number of insurance companies considering asking managers to repackage hedge fund strategies as UCITS, according to a recent survey by EDHEC-Risk Institute. However interest has not been overwhelming for Tocco. Out of over 100 cap-intro events host by J.P.Morgan a year, Tocco has conducted a number of educational events on UCITS: What we have found is that there is some interest, it is not as strong as we see out of Asia and Geneva. From Asia and Geneva it is a sense of added protection, and the Maddof funds were sold very extensively in the Geneva market, so that might have something to do with it, concludes Tocco.
Giles TurnerNews Editor