In Canada, emerging hedge fund managers are inching closer into the spotlight.
Often deemed to follow suit of the U.S., Canada’s growing hedge fund community is now more comprised of new and emerging managers. Yet unlike its southern neighbors, Canadian managers are perhaps vying more for high net worth business, over institutional, according to James Burron, chief operating officer of AIMA Canada, a national group of the Alternative Investment Management Association (AIMA).
The group was formed in March 2003 to act as the voice of the alternative investment industry in Canada.
“High net worth individuals, foundations , and smaller pension plans around five billion in assets are looking and making allocations to small and midsized managers around 600 million,” Burron said.
Despite attracting business from small institutions, Burron noted that the Canadian hedge fund community has come a long way in terms of liaising with institutions, in general.
“(Emerging managers) are coming around…if you’re managing a pension, you used to have to uproot yourself to New York,” Burron told Markets Media. “From a regulatory and compliance standpoint, hedge funds now have to prove that they can handle institutional money, so they’ve created internal chief operating officers (COO) to liaise with pensions, prime brokers, and administrators.”
Though, some COOs, are still outsourced, according to Burron.
Operational due diligence and compliance continue to be pressing issues amongst hedge fund managers. Similarly to the current state of play in the U.S, larger institutions do not typical employ consultants, or “gatekeepers,” when allocating to, specifically hedge fund managers, but Burron highlighted that there is some activity amongst consultants to perform due diligence tasks of new funds.
In regards to raising capital, traditional norms of raising money has not been as much of a success story for Canadian managers, as it has for the U.S.
“We had a capital introduction event a while back,” Burron said, but “it differs here than how it is in the U.S.” Currently, Canadian managers are continuing to reach for distribution amongst the high net worth investor community, but also the retail channel.
“The retail channel has a large bulk of Canada’s money, and that money is concentrated within the five largest Canadian banks. Canadian managers are utilizing platforms to raise significant money, such as talking to brokers…the retail channel can really bump up the assets under management for the hedge fund community,” Burron said.
Perhaps the largest differences amongst the institutional and emerging manager relationship in Canada versus the U.S. is that Canadian institutions are not heavily focused on “out of the norm” alternatives—which Burron highlights, is a limited focus on illiquid real estate, private equity and infrastructure investments.
“Hedge funds are relatively long/short equity, and relative value on the fixed income side,” Burron said. “They’ve been able to raise money in a short period of time but it’s not in their DNA to get outside the norm.”