Swiss fund management company
The service is designed to appeal to investors keen on private equity but unhappy about looking after the money before it is deployed.
The Geneva-based fund management house manages €1.3bn in private equity through a 22 strong team, according to Unigestion’s CEO Patrick Fenal and managing director Jean-Francois Hirschel.
Under the new mandate deal, Unigestion will take over the risk control aspect, managing the unused money earmarked for the asset class in cash, short term fixed income and hedging instruments, said Hirschel, who declined to name the institution.
The managing director said the idea for the service came when a client who had made a private equity investment complained about managing the money while they waited for the private equity managers to call for the funds. This particular client had not realised the staggered investment nature of private equity investments, the managing director said.
Unigestion is now marketing its transitional management service to other clients but also sees its potential in other parts of Europe, as small and medium sized institutions are opening up to the asset class.
The firm has a total of €8.5bn under management, of which €2.5bn is in hedge funds. Its multi-management business amounts to €1.5bn, while €3.2bn is managed in the long-only ‘minimum variance’ equity.
Hirschel reckons Unigestion is well positioned for this combined private equity and hedge fund management service because of its mix of experience in the asset classes in question plus asset allocation and equity long only management.
‘We would not have been able to manage such a service if we had had no experience in multi-management and asset allocation. There are very few houses which simultaneously have hedge fund, private equity and asset allocation,’ Hirschel said. According to Fenal, the strength of the transition service is its simplicity.
‘This is not about finding a new idea, there are so many managers who try to come up with a new idea that investors are besieged and that is not the point. The point is trying to see if an idea works for your clients.
He said however that Unigestion’s mission was not necessarily to deliver clients from risk.
‘There are investors comfortable with taking risk, it is really a case of understanding the nature of the client and the risk, especially because sometimes risks turn up where you least expect,’ Fenal said.
Unigestion’s executives said educating investors to identify the right solutions among the bevy of new products and asset classes is the key to long term relationships.
‘The highest risk we face in this business is that the client thinks he is buying something, when he is buying something else. It is a much higher risk than performance risk because it can destroy the relationship for ever,’ Hirschel said.
Fenal said Unigestion has also invested in transparency and accountability especially in terms of liquidity. The firm provides all its clients with transparency reports to account for their performance, decision and actions.
‘Funds of funds are generally taking a liquidity risk compared with the underlying liquidity of the instruments: there is a mismatch of liquidity in (hedge) funds of funds.
‘Market liquidity for hedge funds has been less and less good, because of their success. You can not do a lot against it, it is part of the business but we assess it and report about it. He also said some hedge funds are not clear on their gates – or caps on withdrawals from the fund during a redemption period.
‘What a client cannot assess is the risk of the gates rule… and currently we cannot say that clients are understanding the risks they take. We do a transparency report quarterly and paint a worse case scenario, as if tomorrow all our clients redeemed their investment and we mention the mismatch, we started over two years ago.
‘At first there was surprise, we are trying to avoid mismatch but we mention it. Now our clients understand and ask other managers for the same. They understand that if there is a mismatch there should also be a better performance because they take a risk they should be rewarded for,’ he said.
By Cecilia Valente