News & Initiatives

Asset owners and managers may not always agree on fees, but one thing both parties are thinking a lot more about these days is creating innovative structures which – if done right – could provide rewards for the former and value for the latter. 

As AI deployment grows, investors will increasingly need to monitor their portfolios' overall exposure to the transformative potential of this technology, particularly in relation to talent strategy integration.

The Standards Board for Alternative Investments (SBAI), an active alliance of institutional investors and alternative asset managers, announced today the launch of its Oceania Advisory Committee.

Albourne is delighted to announce that  @Andrew McCulloch,  has been named on the CIO Knowledge Brokers List. Andrew is a Partner in our Portfolio Group, Region Head of North America and is based in Connecticut. This year’s list compiles the names that CIOs and other asset allocators would recommend to their peers.

CHIEF INVESTMENT OFFICER’s goal is to present a list of top consultants and advisers to the institutional investing market. In May, they asked CIOs and other allocators which consultants and advisers have “done right by them” in the current economic environment. Each nominee was asked to choose three questions from a list of seven to get a glimpse of their thoughts on investments and strategies.

For the full article please click here.

In June Albourne signed an Open Letter supporting the adoption of cash hurdles.

Due to further interest, this letter has been updated to reflect additional supporters, reaching a total of 60 signatories.

Open Letter as of 6 August 2024.

Albourne remains committed to supporting our clients and empowering them to maximize alignment of interests with the managers they invest with. Over the years, we have undertaken significant efforts to effect change in the industry to improve the level, transparency, and shape of fees.

Further, we will be featuring our efforts to improve the alignment of fees and many other priority initiatives as part of our “Investor Manifesto III” launch on the Monday of our client event later this year. For more information, please get in touch with your Albourne contact.

The IOP forms part of the Open Protocol (“OP”) risk aggregation template which was first launched in 2011 to standardise the collection and representation of risk information of investment funds for investors. Open Protocol is currently used by funds representing over US$2tn in assets under management.

IOP provides a risk reporting template for funds that have significant exposure to property catastrophe insurance risk. It has been developed to cater for the unique characteristics of property catastrophe exposure – including risk types, sources of leverage, stress test results, and side pocketing.

Michael Hamer, Partner and Senior Investment Analyst at Albourne Partners said: “IOP’s risk reporting has been revised to capture more aspects of the risk of property catastrophe insurance funds. It will improve the ability of investors to compare information between funds and to create a portfolio view of multiple funds. It is worth noting that IOP has materially benefitted from the input of managers and others in the SBAI ILS Working Group.”

Albourne Partners is recommending LPs partner with managers that are adept at capitalizing on emerging technologies within areas like energy efficiency storage, carbon capture and hydrogen fuel.

The consultant says many energy transition investments are in new or nascent technologies – consequently, GPs may have limited expertise with these types of strategies.

“Investors may have to get comfortable with the expertise they have in ancillary technologies or in the way that the GP is able to structure a deal to mitigate the risk around a novel investment.” Ashli Aslin, partner and senior analyst of real assets at Albourne told With Intelligence.“

For those with With Intelligence access, the full article can be found here.

1fs Wealth has bolstered the capabilities of its AI-driven global wealth intelligence platform by partnering with Albourne Partners Limited, an independently owned, non-discretionary global investment consultant which has been providing advice on alternatives for over 30 years.

Albourne has signed an Open Letter supporting the adoption of cash hurdles.

• This Open Letter on Cash Hurdles to the Hedge Fund Industry has thus far been signed by over 30 Hedge Fund investors and consultants.
• Albourne has been pushing for better alignment of interests on fees for many years; for more on this please see The Shape of Fees | Albourne.
• Albourne has been actively reaching out to investors and consultants and continues to encourage others to sign this letter; for those interested please reach out to your Albourne contact.

Albourne remains committed to empowering our clients to maximize alignment of interests with the managers they invest with. Over the years, we have undertaken significant efforts to effect change in the industry to improve the level, transparency, and shape of fees.

Significant progress has been made, as much of the industry has adopted concepts such as the “1-or-30” fee structure* and some have implemented beta hurdles. However, most funds continue to charge performance fees on the fund’s absolute return – regardless of the fund’s beta.

As discussed in Albourne’s Preferred Fee Terms- Hedge Funds paper* to clients in 2017, we believe that performance fees should be paid only on alpha, accomplished through implementing a beta (or beta proxy) hurdle. Where a fund has no significant beta, we suggest a hard cash hurdle, representing the risk-free rate.

In our recent research on Hedge Funds and Rising Rates*, in which we analyze the degree to which different hedge fund strategies consistently capture the increase in rates, we also state clearly our recommendation that all investors should seek to negotiate cash hurdles.

We recognize that investors acting alone often struggle to engage GPs around this issue, often being told “no-one else is asking for this”. This ‘divide and conquer’ strategy is getting old, and we believe that presenting a unified voice will empower all investors when they raise this issue with their managers.

*These three papers are available to clients and prospective clients only on Albourne’s Insights Pages. Clients can access these documents on the Castle or use their Castle log in details to access the Insights links. Prospective clients can REQUEST ACCESS to Albourne’s Insights page; the Insights Page provides a small sample of the latest research blogs, films, webinar recordings and invites, papers and capabilities.

As we turn 30, we are excited to announce this year’s new Partners!  This promotion recognizes these exceptional individuals who have contributed to our collective ‘road less traveled.’ After 30 years we are proud to continue to provide non-discretionary advice, transparent pricing, and independent ownership. Thank you, Ashli Aslin, Ash Gupta, Chantal Berendsen, Lucy Berrington, and Ronan Cosgrave for being part of our journey!

Albourne is delighted to have launched an updated website, with some new and some refreshed pages. Please take a look at www.albourne.com!

Committed to non-discretionary investment advice, transparent pricing, and independent ownership, Albourne is an investment consultant, specializing in Hedge Funds, Private Equity, Private Credit, Real Assets, Real Estate and Dynamic Beta.

ARE YOU A PROSPECTIVE CLIENT? We invite investors to request access to our new Insights page. This page provides a sample of our latest research – read current market blogs, watch films and podcasts, get invited to our events and receive our newsletters. Please click here to request access today.

WANT TO KNOW MORE ABOUT ALBOURNE? We have provided more information than ever before; browse the Home page to get our latest stats. See the News & Initiatives page to get our latest updates. To understand how we can help you, please take a look at our Services and Clients pages.

For the first time Albourne has published its alternatives indices publicly; the Indices page provides the latest data points for DyBeRS, HedgeRS, and PriMaRS.

ARE YOU A MANAGER? Navigate to the Managers page to find out why reporting to Albourne’s Manager portal, MoatSpace, can help you; log in to MoatSpace to provide transparency to our clients, read our latest ODD updates, and use our Hedge Fund Fees Tool.

INTERESTED IN OUR JOB OPPORTUNITIES?  Navigate to our Careers page to Work with Us and learn what Life at Albourne is like.  

Quick Links to KEY pages below:

• ALBOURNE.COM HOME: www.albourne.com
• NEWS & INITIATIVES: www.albourne.com/albourne/newsinitiatives
• INSIGHTS: www.albourne.com/albourne/insights
• SERVICES: www.albourne.com/albourne/services
• CLIENTS: www.albourne.com/albourne/clients/ourclients
• MANAGERS: www.albourne.com/albourne/managers
• INDICES: www.albourne.com/albourne/indices/HedgeRS
• CAREERS: www.albourne.com/albourne/careers
• WORK WITH US: www.albourne.com/albourne/workwithus
• CONTACT US: www.albourne.com/albourne/contactus

ABOUT ALBOURNE:

Albourne¹ was established in London in March 1994 as an investment consultant specializing in alternative assets. Albourne’s mission is to empower our clients to be the best investors that they can be, by providing advisory services, research, implementation support and data, news & analytics. With over 330 clients², including leading public and corporate pension plans, endowments, foundations, family offices, sovereign wealth funds and financial intermediaries, we benefit from the quality and scale of our clients, who have over $700bn³ invested in alternative assets. Albourne is one of the largest alternatives advisory firms, with 600+ employees, including 411 analysts, in 11 offices around the world.

¹ “Albourne” and “we” refer to the group of companies comprising Albourne Partners Limited and its subsidiaries.

² The aggregate number of client entities for the Albourne Group worldwide. Clients may be subscribed to multiple services. All numbers are as of 1 October 2023.

³ This is a conservative aggregation of the estimated investments in alternatives (where known) of Albourne Group clients worldwide, using public sources where possible.

Albourne’s LinkedIn profile: www.linkedin.com/company/albourne-partners

The Standards Board for Alternative Investments (SBAI) has published updates to the Insurance Open Protocol (“IOP”). 

The IOP forms part of the Open Protocol (“OP”) risk aggregation templates that were first launched in 2011, which standardise the collection and representation of risk information of investment funds for investors, and which is currently used by funds representing over $1.85tn in assets under management. ^[1]

IOP provides a risk reporting template for funds that have a significant exposure to property catastrophe insurance risk. It has been developed to cater for the unique characteristics of property catastrophe exposure, including risk types, sources of leverage, stress tests results and side pocketing.

Michael Hamer, Partner and Senior Investment Analyst at Albourne Partners said: “IOP’s risk reporting has been expanded to include information at the manager, fund, and share class level, and at intervals that are better aligned with the insurance cycle. The increased reporting of stress test results and the flexibility to add new stress events to the template in the future should materially improve the ability to see how funds interact from an overall Insurance Linked Securities portfolio risk perspective.”

This article provides high level insights into Sustainability Integration practices from the analysis of Albourne’s Sustainability Integration Scores (“SiQ Scores”) [1]  for 1,002 funds across several Hedge Fund and Private Market strategies.  

OVERVIEW

The Albourne SiQ Score seeks to measure the degree of Sustainability Integration in a fund (as reported by the fund manager). Albourne defines Sustainability Integration as the incorporation of financially material sustainability risk considerations into the investment decision making and risk management of a Fund’s investment strategy. Albourne’s SiQ Scoring framework was launched in April 2021.  

The scoring framework covers three areas: policy and governance, reporting and investment process & monitoring. According to Emlyn Palmer, Head of Sustainable Investing and Partner at Albourne: “Incorporating the SiQ Scoring framework for Sustainability Integration helps encourage managers to not only meet minimum acceptable standards, but to raise industry standards overall.”

SCORING METHODOLOGY

• The SiQ Score is fund-specific and ranges from 0 – 100 (low to high). It is automatically calculated from a fund manager’s (“manager’s”) responses to a proprietary Short Form Questionnaire (“SFQ”) which forms part of the Albourne Sustainability Integration Questionnaire (“SiQ”). The SiQ also includes the PRI Association’s Asset-Owner’s DDQ which must be completed and submitted along with the SFQ for an SiQ Score to be registered.
• The SFQ’s 15 questions test the fund’s  programme for features that Albourne considers to be core elements of sound Sustainability Integration. The questions in the SFQ are closed ended and presented with no default responses; managers or their representatives must select responses which most closely describe the fund. The responses then drive the SiQ Score based on a proprietary scoring matrix. The SFQ also serves as a survey tool which allows Albourne to collect data from managers about their Sustainability Integration practices in relation to a fund.

KEY FINDINGS

• On average Private Markets funds’ SiQ Scores were higher than the average Hedge Fund score: The mean score for Private Market funds was 68 versus 51 for Hedge Funds. The median scores for Private Markets and Hedge Funds were 74 versus 56.
• Dispersion however was high across and within Hedge Fund strategies whereas Private Market strategies were more tightly clustered around higher averages: Hedge Funds were scattered throughout the full range of SiQ Scores of 0 – 100, with an interquartile range of 60 defined by upper and lower boundaries of 80 and 20 respectively, and a median of 51.  In contrast, PM funds clustered much more tightly around their median SiQ Score of 74, with an interquartile range of 28 defined by upper and lower boundaries of 85 and 57 respectively, and a median of 68. This excluded a few outliers in the lower ranges. 
• Investment Process and Monitoring is a key driver of SiQ Scores: High scores by PM funds are underpinned by high integration in investment process & monitoring whereas wide variations across different HF strategies are largely explained by variation in that area.

[1] “SiQ” denotes Albourne’s Sustainability Integration Questionnaire which is the broader survey instrument that forms the basis of the SiQ Score.   SiQ Scores are only available to clients of Albourne. 

The SBAI today announced that Richard Johnston, Partner at Albourne Partners, has been appointed as the new Chair of the SBAI APAC Committee. Richard will lead the SBAI’s activities and initiatives in the APAC region.

Richard Johnston said, “I have been involved as a member of the SBAI APAC Committee since its formation in 2016. Following our progress building our Hong Kong and Singapore-based stakeholder communities, I am excited to spearhead our efforts in Japan, South Korea and Oceania.”

Richard Johnston succeeds Ted Lee as Chair of the APAC Committee.

The SBAI APAC Committee is equally split across asset owners and managers, exemplifying their commitment to neutrality.

Mario Therrien, Chair of the SBAI Board of Trustees, commented, “I am looking forward to working with Richard as we continue building on our progress in the region. I also would like to take this opportunity to thank Ted Lee for his leadership in galvanising our endeavours in the region in the last several years. His contribution was instrumental in putting the SBAI where it is today in the APAC region.“

The SBAI also has expanded its APAC team by adding Annie Yang as APAC Co-Head to work alongside Tina Hu who has been involved with the SBAI since 2021.

The SBAI is an active alliance of over 150 alternative asset managers and over 100 institutional investors dedicated to advancing responsible practice, partnership and knowledge. It advocates for an effective alternative investment ecosystem through robust standards and the exchange of ideas.

For more information on the SBAI or to join the SBAI community, please contact info@sbai.org or visit the website www.sbai.org.

As we enter our 30^th year, we are excited to announce new Partners & equity options recipients.  

While we are proud of and grateful to every member of the Albourne family, it is important to recognize those exceptional individuals who have been promoted to Partner, as well as those Partners who are either being awarded equity options for the first time or receiving additional awards, in acknowledgement of their impactful entrepreneurial contribution to our collective Albourne Journey.   

This year, we are creating 7 new Partners from 7 different functions (Portfolio Group, Hedge Fund IDD, Private Markets IDD, ODD, Legal & Compliance, Communications and Client Group), 6 Partners are receiving equity options for the first time from 6 different functions (Portfolio Group, Hedge Fund IDD, ODD, Finance, Legal & Compliance and IT), and, finally, 15 existing equity option recipients are being awarded additional equity options: 

The Head of B2Y – Fee & Liquidity, Nicolas Stylianou, alongside Fee & Liquidity Analysts Andria Mosfili and Charis Koumenidou, launched the FeeController, a new dedicated portal for clients. 

Albourne’s Fee Controller is a web-based tool powered by Albourne’s FeeMometer^TM, a portal for users of the FeeConciliation service. It utilizes Albourne’s proprietary technology to offer real time access to analytics and tools which are subject to Albourne’s verifications and controls. The portal focuses on fee consolidation, aggregation, validation, benchmarking and reporting, both at the fund level and portfolio level.

Albourne has been in the fee world from 2009 and has had a dedicated fee team since 2014. Throughout these years we have been very active in the industry introducing various concepts, tools and services. For example, during 2014 we launched the FeeMometer^TM, a tool that allows clients to study the effect of different fee structures and different return environments. We have also helped introduce various concepts from the Shape of Fees in 2013 to the 1-or-30 structure in 2017.

We believe that Albourne’s FeeController enables:

• Robust Data: There are internal controls for processing and recording the data. The team reviews and cross checks on whether the data make sense in relation to the overall fund performance.
• A Holistic View: The metrics and charts help simplify complex themes around fees. Resources can be utilized to present the true impact of fees against portfolio performance (e.g., in board meetings and trainings).
• Real Time Reporting: The fee dashboard gives relevant data points and flexibility in fee reporting. Clients have the option to create customized real time reporting across their portfolios.

Fee Controller is available to clients who are signed up to Albourne’s FeeConciliation services. Albourne’s FeeConciliation service can help validate client fees and provide custom reporting at the client, sub-portfolio and individual fund level.

For any questions, please email: contactus@albourne.com.

Albourne offers Fee Aggregation and Fee Reconciliation services for both Hedge Funds and Private Markets.

This latest Hedgeweek Insight Report starts with the immediate aftermath of the FTX collapse, and focuses primarily, on the more enduring effects. These include the heightened counterparty risk for managers, the loss of confidence among investors, and the influence on lawmakers, on both sides of the Atlantic, as they take their first steps towards creating a framework for cryptocurrency regulation.

Damage limitation

Writing for clients in November 2022, Albourne Partners’ Travis Williamson, Head of Hedge Fund Investment Due Diligence, and Steven D’Mello, Partner, Senior Operational Due Diligence Analyst, said that a confluence of factors had limited the damage from counterparty exposure to FTX for some managers as:

• “FTX did not pass every manager’s counterparty due diligence framework, given the opaque nature of the relationship between FTX and its hedge fund, Alameda Research, and the lack of robust financial reporting and policies. Additionally, managers may not have needed to use the type of leverage that the FTX platform facilitated.
• FTX.com was challenging for some US-based fund managers to access (FTX.com vs FTX.us). FTX. com offered derivatives and was not CFTC registered. For managers that did not have offshore traders or offshore entities, it was difficult to access the FTX.com platform.
• FTX.us did not offer derivatives and allowed withdrawals for a longer period of time than FTX.com did, allowing some of those managers to reduce that exposure as events unfolded.
• Many managers reduce their exposure to exchanges as much as possible by sweeping assets off the exchanges into segregated trust accounts.
• There was relatively limited forced selling, as a large portion of the highly speculative investments in digital assets had been washed out after the collapse of Terra Luna earlier in the year.
• That being said, investors should be wary of clawback risk emanating from the FTX bankruptcy proceedings that may have the result of increasing exposure to FTX beyond numbers reported by fund managers.”

Please click on this link to access the full report.

By Travis Williamson and Steven D’Mello 
Albourne Partners

Following the collapse of FTX, counterparty due diligence has become even more crucial for all active trading strategies. Managers have been trying to find suitable counterparties, while accessing enough liquidity to reasonably execute their strategy.

In the long run, we may see regulatory pressure that forces separation of execution, custody, and financing in digital asset markets to mitigate systemic counterparty risks. 

However, an early interim solution that is emerging to help manage counterparty risk is the increasing usage of off-exchange settlement which permits trading without pre-funding transactions on exchange by using leverage provided by the custodian, with settlement occurring on a daily basis. 

Mitigating Risks Going Forward:

• Avoiding usage of centralized counterparties through trading over the counter (OTC): While there is settlement risk, OTC is wallet to wallet with no ongoing counterparty risk. Triparty OTC is likely to be sought by certain managers to reduce settlement risk. DeFi is also peer-to-peer and wallet to wallet, but regulatory solutions are needed to enable institutions to confidently access it. Decentralized protocols are still subject to substantial security risks (i.e., hacks). Therefore, more maturation of the smart contract security process is required before we see institutions substantially use decentralized exchanges.
• Potentially, there could be a shift towards centralized exchanges that offer more transparency. Proof of reserves involve having the exchange identify its wallets to verify that the exchange has sufficient assets to meet its liabilities. However, proof of reserves may lack granularity on the liabilities side of the balance sheet. Therefore, currently, there is no better alternative than audited financial statements. A combination of proof of reserves and audited financial statements would provide more transparency into counterparty health than currently present.
• Increasing usage of off-exchange settlement, trading on a T+0 or T+1 basis helps mitigate some of the risk.
• Reducing counterparty risk by sweeping assets off exchange into segregated trust accounts and by diversifying exposure across multiple counterparties may also be prudent.

Please click on this link for the full article.

Sizable swathes of the hedge fund industry have been left battered and bruised by 2022’s market turmoil. Managers across a range of strategies are nursing losses and capital outflows as the year draws to a close, while headlines suggest the appetite for less liquid alternatives – such as private equity and debt – continues to outweigh that of hedge funds among many allocator groups. And yet investors continue to show faith in hedge funds, as the findings of this latest Hedgeweek Insights report illustrate.

Travis Williamson, Partner and Head of Hedge Fund Investment Due Diligence, at Albourne Partners, says investors are looking for assets that are correlated with inflation, have return streams unrelated to economic activity, and that provide a hedge to the higher market volatility that inflation creates. “Hedge funds are a particularly helpful asset class when thinking about the latter, as they are relatively liquid. Elsewhere we see continued focus on real assets, due to its inflation linked return profile.”

Q&A:

What are some of the major trends among private wealth investors when it comes to hedge fund allocation in 2023, particularly when compared to interest in other alts?

Travis Williamson: “The appetite for alternative investments among the HNW group continues to grow. Many sophisticated investors are looking for ways to diversify, particularly following a period where some historically sound allocation frameworks have been challenged.”

What are some of the issues keeping hedge fund allocators up at night?

Travis Williamson: “Many issues and trends are strategy specific, but the overall trend of hedge funds becoming less liquid, from an LP perspective, is a significant trend. Hedge fund managers have become more dynamic in the pricing and liquidity profile of their offerings, and given the capacity constraints faced in many strategies, hedge fund managers are introducing more pass-through fee structures with reduced investor liquidity. This trend began in the large players within multi-strategy space and has permutated the industry.”

Please click on this link to access the full report.

The spectre of trapped capital has heightened the desire for efficiency, according to a panel discussion during ILS Bermuda’s Convergence conference.

There are various ways to manage capital efficiently and thus calm the nerves of an investor in insurance-linked securities (ILS). According to Michael Hamer, partner and senior analyst at Albourne, this topic has become a focus for investors because, over the last four or five years, substantial amounts of invested capital has become ‘trapped.’

As moderator of the panel “Reduce, reuse, recycle” at ILS Bermuda’s Convergence conference, Hamer began with a positive message.

“A number of managers and service providers have been very active in trying to develop ways of making the investments more efficient. One of the areas that in particular has really grown quite rapidly is providing investors with a significant amount of non-recourse leverage through the use of rate and balance sheets, and tail hedges,” Hamer said.

For the full article please click here.