West Coast NICSA Alternative Investments Conference

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West Coast NICSA Alternative Investments
Conference
June 2, 2005
Judith Posnikoff Patricia Watters Pacific
Alternative Asset Management Company, LLC
[phone]
jposnikoff_at_paamco.com pwatters_at_paamco.com
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Igor Stravinsky

• Just as appetite comes by eating, so work brings
  inspiration, if inspiration is not discernible at
  the beginning.

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Flashback to 1994

• Rolodex based investing
• A few very LARGE hedge funds
• High Net Worth Investors
• What is a Fund of Funds?

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Sources of Capital 1994
Source Hennessee
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Money Talks

• Hedge Fund Assets
• 1994 - 99 billion
• 2000 - 324 billion
• Jan 2004 - 795 billion
• Jan 2005 Over one trillion

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Sources of Capital 2004
Source Hennessee
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Why are Institutional Investors turning to hedge
funds?

• Capital protection
• Alpha
• Liability matching
• Diversification across assets

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Why Funds of Hedge Funds for Institutional
Investors?

• Diversification across HFs
• Transparency
• Risk analysis
• Liquidity
• Capacity access
• Manager due diligence

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Present Day

• An institutionalized asset class
• No longer who you know, but whats your alpha
• The big are getting bigger for FOF

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So what does this mean?

• Returns are going down
• Terms are changing
• Power is shifting to the FOF
• Fund of Funds are playing a larger role

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Power shift to Fund of Funds
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Hedge Funds are growing!

• 2002 Top 10 HFs managed 71.5 b
• 2004 Top 10 HFs managed 93.9 b
• 31.3 Growth in Top 10

Source Institutional Investor
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Fund of Funds are growing faster!

• 2002 Top 10 FoFs managed 64.5 b
• 2004 Top 10 FoFs managed 162.8 b
• More than 150 growth!

Source Institutional Investor
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Asset Growth

• PAAMCO
• Institutional assets
• Plan assets
• Corporate ERISA plans
• Other benefit plans

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Managing plan assets

• Large, stable allocations of
• Political challenges
• Sunshine laws (FOIA)
• Security restrictions
• Capacity with HF fiduciaries

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Institutions view Hedge Funds Traditionally

• Closer regulatory scrutiny
• Reporting and disclosures
• Competition
• Portable alpha

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Transparency and disclosure requirements what
are the investors really looking for?

• What do investors need to know?
• Conflicts with FOIA or Sunshine laws
• What do investors do with information?
• Standardize?

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Why should HFs work with FoFs?

• Assets
• Manager focuses on trading
• FoF is point of contact

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What do FoFs expect from HFs?

• Performance
• Transparency
• Fees
• Liquidity
• Capacity

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Voltaire

• The secret of being boring is to say
  everything.