Interview with Shane Brett, Global Perspectives

Shane Brett has 15 yeaShane Brettrs experience in hedge fund and asset management operations, consultancy and programme & product management at many top tier managers and administrators worldwide. In 2011 he founded Global Perspectives, a company that offers consulting, research and development to the asset management & hedge fund industry. Mr. Brett is also an author specialising in hedge funds, asset management and the wider global economy. His latest book “The Future of Hedge Funds” was published in December 2012. He is on the editorial board of “All About Alpha”, is a contributor writer to “” and has a regular interview slot on “Dukascopy TV”, the Swiss business channel. Furthermore Mr. Brett is a regular conference speaker and as he recently published a white paper on the state of hedge funds, we took the opportunity to find out what his views on the future of the alternative investment industry are. You recently published a white paper that states that the golden era for hedge funds is over. What are the reasons for this conclusion?

Shane Brett: Our white paper looked the pre-2008 era of huge performance fees, high fund returns and a low level of regulation and compared this with the trend in recent years. Since the global financial crisis there have been multiple years of poor performance, a multitude of new hedge fund regulation and new proscriptive rules in Europe regarding remuneration. Investors are also much more demanding now, both operationally and around areas like fee negotiations. All these trends have combined to make a more difficult environment for hedge funds and we believe the days of enormous annual payouts are coming to an end, particularly in Europe. It is not so much that the golden era of hedge funds is over – we still believe hedge funds have a strong future – it is that their “Gilded Age” is over. What are the reasons that hedge funds might have a strong future?

Brett: Even though hedge funds might not be as lucrative in the future a number of trends are taking place that promise a bright future for the industry. ​The years ahead will see a worldwide surge in asset management investment as governments and companies back away from pensions and people need to save more for their retirement. This combined with an on-going hunt for yield in a zero interest rate   world, will make hedge funds an attractive alternative for many investors

​This trend will be underpinned by continuing strong economic expansion in global emerging markets. Hedge funds are still a niche market in Asia but they could become more mainstream as countries become wealthier and the range of investments available in these markets grows.

​The challenge for hedge funds will be to preserve as much of their revenue model as possible, while delivering value to investors”. Looking at the AIMF Directive: do you think the new remuneration rules will make it hard to attract or keep the talent in the hedge fund industry?

Brett: Yes definitely. It will make it harder for European hedge fund managers to recruit and keep talented hedge fund staff across the continent. It will also make it to compete with other international locations. Considering no hedge fund in Europe (or anywhere else) has ever had to receive a public bailout in any form whatsoever, we believe it is unjustified and unwarranted political interference into this industry. Lawyers in Europe will be examining ways to get around this legislation, but we believe the way the remuneration guidelines have been framed will make this very difficult. These guidelines will definitely make the US and Asia more attractive for hedge fund start-ups. As regulation in Europe seems to increase constantly might this also lead to an increase of UCITS hedge funds or will managers rather not target Europe or setup a vehicle subject to AIMFD?

Brett: The huge increase in European fund regulation will lead mangers to very carefully consider how they structure, manage and market their funds in the EU. Some hedge fund managers may choose to by-pass Europe completely. However the EU is the worlds‘ largest trading block and the hunt for investor allocations will mean most non-EU funds will likely comply with the Third Country Provisions of AIFMD over the next few years. You mentioned the convergence of the mutual and hedge fund space, which in Europe mainly happens under the UCITS regime so far. Do you expect the UCITS hedge fund space to grow rapidly over the next years?

Brett: Yes. The UCITS brand continues to be attractive to many global investors and this is something we expect to see growth in the future, especially in Asia. There are huge savings deposits in Asian countries (particularly in China), which are starved of safe, dynamic investment opportunities. Continued marketing of UCITS into Asia, combined with more relaxed investment restrictions, should make these funds an attractive investment in the years ahead. The UCITS passport has been very successful and it will soon be joined by an AIFMD passport for hedge funds. This may assist the growth of EU hedge funds globally, as these funds are made to adopt the much more transparent reporting and operational requirements under AIFMD. This may make them more attractive to a wider variety of investors. Thank you for the interview.