Albourne Partners is pushing to make hedge fund pricing more transparent and wants to take a leading role in facilitating negotiations between investors and managers.
The specialist investment consultant, which works with 257 clients investing over $400bn in alternatives, will this week launch a new initiative, dubbed “The Matrix”, which it says will create a more efficient “price frontier” and will include a scoring system based on managers’ fee transparency and the flexibility of their fee structures.
Through the matrix, investors will be able to compare hedge funds based on an “expected share of return” which takes into account expected returns and volatility.
“The Matrix will provide managers with the level of return that an Albourne client would expect them to achieve to put them on a first/second quartile cusp of reasonableness” Simon Ruddick, chairman and founder, told HFMWeek.
It will also allow managers to post open and closed proposals to investors based on specific fee deals and allow allocators to post invitations subject to specific screening criteria, as part of a drive to connect allocators and hedge funds in a more transparent and efficient manner. How clients are able to view the Matrix will depend on regulatory constraints in their jurisdiction.
A great risk for hedge funds is that investors lose patience with the industry before a new price equilibrium emerges,” Ruddick said.
“Price discovery is a two-way street and this initiative will be warmly welcomed by funds trying to convey a willingness to consider new fee structures to prospects.”
The initiative is being spearheaded by Albourne’s global head of operational due diligence Adrian Sales, who will take a lead in assisting allocators with fee negotiations where requested, and Gaurav Amin, global head of risk, who will oversee the Matrix itself.
Edward Lewis, the consultant’s head of manager relationships, will oversee the roll-out to fund managers.
Jonathan Koerner, head of implementation, will also play a key co-ordinating role.
“We’re just trying to make sure that the right investors are in the room with the right fund managers and then helping them to find a win-win solution, which is typically also the most aligned,” Ruddick explained.
“We are not looking for special deals specifically for Albourne, but nor should our clients be disadvantaged.”
Albourne will also start processing the terms and fee stances of managers to feed into a new scoring system focused on flexibility and transparency.
It will score hedge funds on transparency, based on their disclosure of existing and past terms, side letters and pricing policies.
The flexibility score will reflect existing and actively proposed terms as well as a manager’s willingness to consider alternative arrangements and will factor in strategy-specific criteria.
The scores will be based on information managers provide the consultant, through a template and questionnaire which will be available on its online portal, Moatspace.
Unlike Albourne’s manager ratings, which are only provided to clients, these scores will be shared with the manager concerned, alongside the criteria used for their evaluation.
The initiative will be rolled out in three stages. Data collection and manager discussions will go live this week.
Manager scoring and the generation of the Matrix will start taking place early in the new year, followed by the facilitation of manager and investor proposals, Albourne anticipates.
The UK regulator is also increasingly focused on transparency within the broader asset management industry.
Albourne’s initiative follows shortly after the FCA issued an interim report based on its review of asset managers, in which it highlighted concerns about potential conflicts of interest among investment consultants and also floated plans for an industry-led template to make asset manager fees disclosed to institutional investors more transparent.
Albourne, an FCA-regulated entity which only conducts advisory business, has welcomed the report alongside a number of other consultants.
If you are based in London you can hear Albourne Partners founder Simon Ruddick debate the firm’s new initiative as part of HFM’s next breakfast briefing at The Lansdowne Club, Mayfair on 13 December. For more details on the panel and to register to attend please click here.
Look out for an in-depth interview with Albourne in the next issue of HFM Investor Relations.