The hedge fund solutions team of BNP Paribas’ Theam is looking for confident, responsive hedge fund managers running liquid strategies.
FoHFs have struggled since the financial crisis because of lacklustre performance and subsequent outflows. Debonnet believes investors need to change their perception of what hedge funds offer for FoHF’s fortunes to improve. “All investors are seeking protection today. Hedge funds do not offer protection, and they certainly are not an asset class. They offer a style of management,” he explains.
He adds that FoHFs continue to attract interest from certain investors, particularly retail investors in Japan and US pension funds striving for returns 1%-2% above those provided by fixed income.
European pension funds haven’t been exposed to low bond returns for long enough, which explains their reticence towards FoHFs, although this could soon change. He notes rising interest from Spanish and Italian pensions funds keen on finding FoHFs offering tail risk hedging or fixed income hedging.
Debonnet adds that Theam’s range of investors want different levels of involvement in the fund selection process. Institutional investors such as large French insurance groups will expect to meet potential managers and even suggest managers to Debonnet’s team.
For this reason, managers must make time to see Theam at least twice a year or an investment opportunity will be lost. A fund might have an impressive investor relations team, “but that is not good enough for us”, Debonnet says.
Debonnet’s experience running a hedge fund helps him develop a constructive relationship with managers who make it through his selection process. “We give them lots of advice. When you’ve done their job, they look at you differently. We understand exactly what they are doing,” he explains.
Debonnet is happy with the attention Theam has generated to date, with assets currently standing at €45bn, of which hedge funds solutions represent €900m. “We can sense the demand [for our offering] and are growing every day,” he notes. He attributes the popularity of Theam’s alternatives offering to their commitment to providing dedicated fund of funds as opposed to the commingled alternative.
“Investors are increasingly courted by the likes of Brevan Howard or Winton Capital. We try to limit overlaps with these groups providing made to measure or customised funds of funds,” he says.