Evolution of an industry Separating fiction Virtual roundtable of over 25 years from reality industry leaders How the industry went mainstream Challenging hedge fund myths Five years yonder... P6 P20 P38 15 20 | 25 Years in 90 Hedge Funds 19 A special publication to mark AIMA's 25th anniversary Contributors Contents Neil Wilson, Wilson Willis Neil was for many years at HedgeFund Intelligence, starting in January 2001 as editor of EuroHedge, and then later becoming managing editor and editorial director for all of the HedgeFund Intelligence publications, which also include AsiaHedge, InvestHedge and Absolute Return, with responsibility for all of their associated online news, special reports and events. He has more than 25 years’ experience in financial journalism and publishing, specialising mainly in derivatives and alternative investments. Prior to 2001, he was European editor of MAR/ Hedge, editor of Futures & Options Week and assistant editor of The Banker. Over the years, he has contributed to various other publications including The Financial Times, The Economist and Risk magazine. He has a BA with honours in Philosophy, Politics and Economics from the University of Oxford. 4. 12. Introduction Timeline A global mantra The international nature of investing, trading and regulation means it has never been more necessary for the hedge fund industry to have a global representative. Iain Cullen, By Jack Inglis Simmons & Simmons LLP Iain Cullen is a partner in the Financial Services Group at Simmons & Simmons LLP. He joined Simmons & Simmons in 1977, qualified as a solicitor in 1980 (working for the first 18 months in the firm’s Brussels office) and became a partner in 1986. Since 1993 Iain’s practice has concentrated on structuring hedge funds and advising hedge fund managers. Iain has served as General Counsel of the Alternative Investment Management Association since its foundation in 1990, was Co-Chairman from 1991 − 1995 of the Commodities, Futures and Options Committee of the Section on Business Law of the International Bar Association and is 14. the co-editor of Hedge Funds: Law and Regulation published by Sweet & Maxwell (2001). How the landscape 6. has changed for Then and Now hedge funds Evolution of an industry The legal and regulatory environment over 25 years for hedge funds has changed beyond Niki Natarajan, In Ink recognition over the course of the Alternative investments have gone from last 25 years After writing and editing InvestHedge, a publication from HedgeFund Intelligence, for the periphery ever more towards the By Iain Cullen more than 12 years, Niki founded In Ink (London), mainstream of the financial world in the a company specialising in creative content and past 25 years — and AIMA has played an communication consultancy. Niki has more than increasingly significant role along the way 20 years' experience as a financial journalist, By Neil Wilson specialising in investment management, with particular expertise of the global funds of hedge funds industry. Prior to working at HedgeFund Intelligence, Niki launched the hedge fund and securities finance coverage at Financial News. Niki was also the launch editor of Global Fund News; editor of Foreign Exchange Letter; and reporter on Global This report was prepared in collaboration with Wilson Willis Management Ltd. Wilson Willis was founded in January Money Management, all formerly publications of 2014 to provide specialised services including analysis, commentary, bespoke research and conferences for the asset Institutional Investor's newsletter division. management world, with a primary focus on hedge funds. A qualified NLP coach and trained yoga The views and opinions expressed do not necessarily reflect those of AIMA or the AIMA Membership. AIMA does not teacher, Niki graduated in Geography from accept responsibility for any statements herein. Reproduction of part or all of the contents of this publication is Durham University. strictly prohibited, unless prior permission is given by AIMA. © The Alternative Investment Management Association Ltd (AIMA) 2015. All rights reserved. 2 25 Years in Hedge Funds 20. 38. Separating fiction 30. Virtual roundtable from reality Accessing Five years yonder... Despite plenty of evidence to the contrary, After 25 years of rapid growth and change many myths have grown up about hedge hedge funds in hedge funds since the foundation of funds during the last quarter-century that AIMA, a group of leading players from still persist in the popular imagination How 'solutions' are the around the world give their views on the By Neil Wilson outlook ahead for markets, investors and new FoHFs the industry The roles of consultants and funds of hedge Compiled by Neil Wilson funds (FoHFs) have increasingly converged over the years, with significant ramifications for both fund managers and investors By Niki Natarajan 3,000 10,800 2,800 10,080 2,600 9,360 2,400 8,640 2,200 7,920 2,000 7,200 1,800 6,480 1,600 5,760 AuM 1,400 5,040 Funds 1,200 4,320 1,000 3,600 800 2,880 600 2,160 400 1,440 200 720 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Assets $bn Number of funds 48. 24. Big Data Learning the The growth of the global hedge fund industry lessons of the past 34. As the hedge fund industry has evolved The next five years since 1990 it has had to learn a series of important lessons There is a wealth of research from recent By Niki Natarajan surveys and studies looking to the future — and how hedge funds are likely to continue to grow, but are also grappling with various complex challenges ahead By Neil Wilson 3 Evolution of an industry over 25 years A global mantra The international nature of investing, trading and regulation means it has never been more necessary for the hedge fund industry to have a global representative Introduction by Jack Inglis, CEO, AIMA am proud to introduce this special publication to mark the 25th Well over 1,500 corporate member firms and almost 10,000 anniversary of AIMA. Founded in Europe in 1990 by fewer than 20 individuals take advantage of AIMA membership. managers and service providers who recognised the need for It is of course our members who are the backbone of the association. mutual representation, AIMA has grown into a truly global They comprise both the largest and smallest firms around the world, Iorganisation, with offices in every region of the world and members in all contributing to important output such as responses to regulatory well over 50 countries. consultations, updates to DDQs and new industry guides. We have Most financial industry bodies are country and jurisdiction-specific, more than 70 committees and working groups globally, comprising but ‘global’ has been AIMA’s mantra. The international nature of more than 600 individuals from over 350 firms. It is that support that investing, trading and regulation means it has never been more allows us to continue to deliver all the services our members ask us necessary for the hedge fund industry to have a global representative. for; and to undertake, with the help of the members who volunteer their time, all our work on behalf of the industry around the world. From small European beginnings, an impressive international network encompassing Asia-Pacific, EMEA and the Americas has been We are hugely grateful to our various sponsor organisations. Our constructed. The US has the dominant market share in the industry Sponsoring Partner members continue to provide unstinting and and represents over 50% of the aggregate AUM of our global important support − Bloomberg, Clifford Chance, Dechert, Deloitte, membership; our Americas presence is further augmented by the EY, K&L Gates, KPMG, Macfarlanes, Man, Maples and Calder, Permal, existence of our National Groups in Canada and Cayman as well as our PwC, Simmons & Simmons, Societe Generale, State Street, UBS, Wells activities in Brazil. In Asia-Pacific, we have National Groups operating Fargo and Willis. in Hong Kong, Singapore, Japan and Australia, combined under a Special thanks are also due to the sponsors of the 25th Anniversary single regionally-focused operation. Annual Conference and Dinner, whose advertisements you will see in The growth of the association in terms of membership and staff this publication − Simmons & Simmons, EY and State Street. Iain reflects the expansion of the industry. In 1990, what was then still Cullen of Simmons & Simmons, our General Counsel since inception, very much a boutique sector, managing less than $40 billion in assets, provides a wonderfully rich recent history both of the industry and was served by a part-time secretary and volunteers; in 1994 we were the association within this publication. still operating out of shared office space in Paris. How the hedge fund industry has evolved in 25 years is obviously a As recently as 2005, by which time we had around 900 corporate theme of this publication. The sector has changed substantially in a member firms, and our head office had relocated to London, we still generation. Challenges and occasional crises as well as tremendous had only eight staff members. Today, we have a total of 38 staff; 25 in opportunities have punctuated a period marked more broadly by the London head office and a further 13 in our representative offices institutionalisation, globalisation and increased regulation. The next around the world. The industry manages around $3 trillion in assets, 25 years will doubtless see even more change. Ever present will be much of it on behalf of institutional