Singapore-based hedge fund research firm GFIA has signed its first agreement to work with an asset consultant, Boston-based NEPC.
It comes after GFIA – which researches strategies investing into Asia-Pacific, Latin America and Europe, Middle East and Africa – has cut ties with London-based consultancy Laven Partners after a valuation disagreement over a planned joint venture.
NEPC has offices throughout the US and works with institutional investors on asset allocation and investment strategy, helping them to execute largely by investing through external managers, including hedge funds, long-only and private equity firms.
“I have been talking to NEPC for a while and my perception is that by US standards they are well ahead of the curve in terms of understanding Asia,” says Peter Douglas, GFIA’s founding principal. “Although they have an excellent team around them, they understandd what it is they don’t know.”
GFIA will look to provide qualitative information about managers and fund strategies as well as regulatory developments, plus will provide execution services, whether that be a specific piece of due diligence or research work.
While GFIA will act as a consultant and charge NEPC a fee, Douglas indicates that the relationship will be more two-way than that. “We need to understand their processes and we are looking forward to learning from them as well because they are much bigger and in a more sophisticated market,” he adds.
Established 16 years ago, GFIA has worked for a range of professional investors, including pension funds, private banks, funds of funds, family offices and endowments.
It consists of three analysts (including Douglas) and two support staff. They aim to identify managers that deliver alpha from public markets, equating to a mixture of hedge funds and unconstrained long-only strategies. Around 80% of these are investing in Asia-Pacific.
“We have a conviction that alpha is not scalable,” says Douglas. “Therefore we avoid large institutions and focus on boutiques.”
Interestingly, he notes that 75% of the strategies in its database currently are hedged, although he suggests the long-only quotient is creeping up again. “Over the years the hedge fund portion has been over 80%, but the long-only guys are beginning to reclaim a bit of real estate.”
Douglas admits the post-global financial crisis years have been lean from a business perspective. “Appetite for boutique managers and therefore the kind of research we do virtually evaporated,” he notes.
“But since the end of last summer it is beginning to come back a bit, which is very heartening. Whether this is a structural turn or just a blip, we don’t know.”
At the start of last year, GFIA signed a tie-up with Laven Partners with the intention of working together and setting up a compliance consultancy JV at the year’s end.
“The idea was to do client consulting in Asia, advising managers what boxes they need to tick in a brave new world, not just in their home jurisdiction but globally as well,” explains Douglas. “There is a real opportunity to work with managers and help to institutionalise their organisation and business processes. That thesis still holds.”
However, he confirms that GFIA and Laven Partners could not agree on the infrastructure that was required for the venture to fulfil its obligations.
“We felt that it would need quite a lot of organisational infrastructure to roll this out and that there would be a high value to that,” adds Douglas. “Conversely Laven thought they could do it without much organisational infrastructure. We just could not agree on the financials of what an equity deal would look like.”