The world of alternative investments is changing and in Canada that flux should transform the entire investment industry in the years to come.
James Burron is COO with Alternative Investment Management Association Canada and sees plenty of growth potential for hedge, futures and currency funds in the coming years.
“There is a proposal out for the modernization of the investment fund industry in Canada from the securities administrators,” he says. “Basically what that means is liquid alternatives or retail hedge funds. Anyone could buy them, just like a mutual fund. Mutual funds in Canada in the mind-90s were about $40 billion; now it’s over $1 trillion. Hedge funds currently are about $35 billion, and as soon as you have retail investors and banks looking at this the popularity will light up.”
AIMA was established in 1990 in London to represent those in the alternative investments sphere worldwide. Today it has over 1,600 corporate members across 50 countries, including the US, Australia, Dubai and Singapore. The Canada branch opened its doors in 2003 and the unique regulatory system here has presented plenty of challenges for the organisation.
“About half the hedge fund money in the world is in the US, specifically New York and Connecticut,” says Burron. There is a lot of advocacy going on in Washington with the FCC, CFTC and the other regulatory organisations. In Canada we are active with the Ontario Securities commission and the other provinces as well as the CSA.”
For Burron, the provincial-based regulatory standard leaves too much margin for error, so bringing uniformity to the system would benefit all those concerned. “We don’t have a house view regarding national versus provincial,” he says. “There are differences with the provinces, but there differences with the states in the US too. We definitely want harmonization, even with the regulatory bodies are all under different roofs, if they do the same thing that would be nice.”
With the markets being so temperamental in recent years, alternatives have grown in popularity. AIMA Canada’s COO offers some reasons why.
“They are delivering lower volatility than the broader markets generally,” says Burron. “They are typically shorting stocks, so just by doing that it reduces your volatility a fair bit because there will be something else in the portfolio working. It can be a way of making additional alpha, but mainly it’s a good way of reducing volatility.”
Another major issue for money managers, be they hedge or otherwise, is the issue of fees. Should they be linked to the performance of the fund itself is a matter of contention for some. For Burron, his personal experience is that both sides of the argument have some merit regarding fees.
“The alignment with fees is changing,” he says. “Many allocators say they are fine with paying a fee, but they want alignment. We also had an event in the UK recently and a Canadian manager said he was all right with paying a higher fee at the beginning for a fund. A higher fee can be used to hire a specific person that will compliment your team. It’s very pragmatic I’m finding.”
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