eVestment Alliance

Building a next generation hedge fund database

BILL McINTOSH

Hedge fund investors may face fewer obstacles in finding managers and monitoring their performance than was the case a decade ago. But getting data and collating it can still be a time consuming and costly undertaking, especially for investors with limited resources.

A large variety of data providers cover the hedge fund sector with Hedge Fund Research, Barclay Hedge, Lipper TASS and Eurekahedge being among the leaders. This provides challenges for both hedge fund managers and the investors who are the end users of the performance data.

Managers face the problem of how widely should they seek to be captured in the various databases attempting to deliver performance information. For investors, the issue is more likely to involve a balance between the need for data and the price to obtain it. Just as no data provider has every hedge fund, no manager reports to every database.

Inefficiencies among consultants
eVestment Alliance began putting fund data together in 2000 when some ex-Towers Watson executives saw inefficiencies on the consulting side and thought they could develop data and software more directly suited for investing purposes. They began with long-only funds, moved to start developing a hedge fund data set and then stepped this up a gear with the acquisition of HedgeFund.net in September 2011.

“Our focus is on the breadth of the hedge fund data we can put together with a client base of institutional investors,” says Peter Laurelli, vice president and head of research with eVestment/HFN, discussing the firm’s move into providing hedge fund performance data.

“It is part of the evolution of interest we have seen in hedge funds. eVestment Alliance is very institutionally focused and it is those firms who are saying they want to increase their exposure to hedge funds significantly.”

A $2.5 trillion industry
One of the immediate differences of eVestment data is that it calculates total hedge fund assets at slightly over $2.5 trillion. This is around 20% higher than the figure used by a number of other data providers. Why the difference?

The rationale is straight forward. eVestment decided that administrators are closest to hedge funds. What’s more, it estimates that around 95% of industry assets are parked with independent administrators. So the decision was taken to survey administrators to generate the total asset estimates.

“From month to month we apply periodic change in estimates to this figure from the administrators,” says Laurelli. “If there is an anomaly we can do a re-statement which we needed to do after 2008 and 2009. Our figures are different because we have taken the time to go directly to the source.”

Inflows positive
The data for the first quarter showed that the combination of net investor inflows ($28.9 billion) and performance ($62 billion) resulted in industry AUM rising 3.7% or $89.1 billion to $2.55 trillion. That incorporated funds returning at average of 4.6% during the quarter, the industry’s best start to a year since 2006.

Hedge fund investors appeared to take a risk averse approach to allocations in the quarter. There were large increases (See Fig.1) to funds with global exposures, a move away from emerging market equities along with increased redemptions from funds targeting European markets and strong net inflows into commodities, global macro and credit strategies.

evestment1A
The integration of the HedgeFund.net and eVestment databases brings together performance from 21,000 funds, including funds of hedge funds. The figure includes around 12,000 dormant funds. eVestment estimates the new data set has 50 of the top 100 hedge fund managers by assets under management. The firm reckons this puts it poll position among the commercial databases in the market and gives it traction with a number of the bigger managers who may not report to commercial databases but only to end-investors.

Direct reporting
Towers Watson has worked along side and advised eVestment in setting up the hedge fund database, but won’t have exclusive access to its data. The consultant is requesting that managers report directly to eVestment but can arrange for data to be kept in a separate portal. It means that the data from managers can be included in aggregates but kept confidential.

For consultants and others across the institutional investor, sovereign wealth and family office sectors, the eVestment offering is intended to cut back on cumbersome and costly hedge fund data handling. The eVestment Analytics sytem will provide a platform for online manager comparisons, research and competitive intelligence. eVestment is also building a substantial proprietary research product on the back of the commercial and segregated data sets.

Headquartered in Atlanta, eVestment moved first on building a presence in the US market and has built up an estimated 99% coverage of the long-only funds market there. Since 2009, it has expanded globally, adding offices in London, Hong Kong and Sydney.

Global coverage
“The coverage of investment management is fully global and our client base of investors is expanding globally,” says Laurelli. “The sort of traction we have in the US is starting to take hold in Australia, Asia and London.”

eVestment’s challenge to existing data providers comes at a time when the complexion of investors in hedge funds is changing. Funds of hedge funds and high net worth investors have been a declining portion of industry assets since 2008, with institutions occupying an increasingly more central role. And with different investors, data requirements will also vary.

As one of a key number of consultants advising institutional investors, Towers Watson was keen to work with eVestment to develop a data product for this growing segment of the market. eVestment, for its part, will market the new data service to the full range of consultants, advisors and other investment advisors.

“Compared with some of our competitors our database has been aligned with consultants from the outset and that has driven how it developed,” says Laurelli. “It is in our roots. Users tend to be very loyal to the datasets. As the industry shifts from high net worths and fund of funds to institutional investors coming from that side is a great benefit.”