EIM, a global manager of funds of hedge funds with $8.5 billion of assets under management, is creating a platform for separate managed accounts, of which Deutsche Bank will serve as risk manager.
EIM will own the platform, and will put up around half of its currently approved funds during 2010, says Antonio Muñoz-Suñé, chief executive of the firm's US business.
"[The platform] lets us control the assets and provide daily risk transparency," he says. The purpose is not to provide daily liquidity or to compete with providers such as Lyxor and Man Investments that do offer such a service, adds Suñé, but more about control and risk management.
EIM has a long-standing relationship with technology provider RiskMetrics and encourages its underlying fund managers to adopt the vendor's platform for portfolio risk. EIM says its risk management has always been transparent to its clients, but the Bernie Madoff ponzi scandal has made rolling out the platform for separate accounts more urgent.
EIM was tangentially caught up in the Madoff fraud, which emerged in late 2008. The manager had no direct exposure to Madoff funds, but it did to some managers who invested in them. EIM had done their full due diligence on those managers' operations, but they were not allowed to do so on Madoff's operations. Those funds' independent auditors and administrators also missed the fraud.
From now on, EIM will insist on meeting feeder funds' underlying managers before investing, says Muñoz-Suñé.
Despite this indirect exposure to Madoff, EIM has kept its business afloat thanks to a model that emphasises customisation, as opposed to commingled funds. Its client base is mainly institutional, rather than high-net-worth, and the individual portfolio approach has always required full transparency.
The firm did suffer mid-double-digit negative performance across its strategies in 2008, but fared better than the funds of hedge funds industry as a whole. Muñoz-Suñé says redemptions were mostly due to client rebalancing.
One reason for performance to be relatively better is that EIM responded to client concerns in early 2008 about equities exposures by tilting them towards tactical trading managers, such as CTAs, short-frequency traders and credit arbitrageurs. This created enough of a buffer, says Muñoz-Suñé.
Around half of EIM's business is European, but the firm sees growth in 2010 coming from the US and Asia.
In the US, pension funds are underfunded, despite the 2009 market rally, and risk falling back underwater if markets falter again. They are therefore looking to improve their asset allocations.
Muñoz-Suñé argues that hedge funds should not be counted as a separate asset class; rather they are tools within existing asset classes like equity or fixed income. "We are seeing more institutions move risk budgets for equity or credit to hedge funds, but in general they need to do more to catch up," he says.
EIM's Asian activities gathered strength with the 2006 opening of an office in Singapore for manager research and business development. This effort is led by Australian native Mike Foskolos, previously with Mercer Consulting. In addition, after Muñoz-Suñé took the US CEO role three years ago, EIM landed a mandate from Daiwa Fund Consulting, an affiliate of Daiwa Asset Management.
Meanwhile, the firm's New York office, initially founded as a research and investment outpost of Geneva, is increasing its activities among Asian investors focusing on China, Japan and South Korea. Xie Pengfei -- formerly with GE Asset Management, and who runs investment solutions in the US for EIM -- is helping to cover China.