Regulation could be saviour of Europe’s FoHF business

While many moan about the EU’s AIFMD and other rules, one fund of hedge funds leader is optimistic the regulations will stimulate activity in Europe and bring assets back to the industry

Not many leaders of the hedge fund community in Europe openly embraced regulation of the industry after 2008. One individual, however, decided it was better to work with regulators and governments to ensure the best possible result for the industry as well as investors.

From when he began at Banque Privée Edmond de Rothschild Asset Management Switzerland in 1994 to the present, Alexandre Col has worked incessantly to promote best practice, encourage high ethical standards and to help make legislation and regulation of the hedge fund industry appropriate and beneficial to both sides.

Now group head of Edmond de Rothschild (EDR) multi-management and asset management in Switzerland, Col continues to advocate on behalf of Europe's fund of hedge funds (FoHF) community as well as for single managers.

Col has long experience of the hedge fund industry. At Banque Privée Edmond de Rothschild he is in charge of asset management in Switzerland and heads multi-management at EDR group level, running $11.5 billion of assets under management mainly through the umbrella fund Edmond de Rothschild Prifund.

He runs all activities from selection and management of the FoHF business, whether in alternative, traditional or real estate vehicles. He also created the first Swiss real estate Sicav. His career allows him to have both the pragmatic vision of asset management but also capture the regulatory aspects. His educational background, with degrees in political economy and political science, has made him a respected figure throughout Europe's fund community.

Now we're going to have maybe two years that are going to be much better. Nevertheless, they are going to be two transitional years, linked to regulation and the AIFMD. But at the end, we'll have the European passport, we will have a unified European [market] and that is going to be very helpful for people like me, managing and selling funds of funds.

He is a member of several expert committees: the Alternative Investment Management Association Limited (Aima) in London as well as Swiss representative to the regional advisory committee of Aima; chairman of the ‘regulatory circle', an internal committee of the expert group alternative investments council of the Swiss Fund Association; as well as membership of the European Fund and Asset Management Association and the Transparency Council Funds of Hedge Funds.

This background coupled with his experience gives even more weight to his views of the future of the industry in Europe. Surprisingly, he is upbeat about the future for FoHFs. "The European fund of funds industry – and I'm talking about the vehicle, the legal entity – is going to be the best way to allocate to the industry, given what's going to happen with the alternative investment fund managers directive (AIFMD) and the new regulations. I expect that we'll also have the fund of funds allocator based in Europe, not only the one outside of Europe. The structure will have a brighter future than expected and the asset allocators in Europe will be helped by that," he states.

He believes the introduction of AIFMD is "going to push all the institutions to buy funds that have a European passport". People who rely on the private placement rule to sell their funds in Europe will only be able to do that for a couple more years. "It is obvious to me that the way funds are sold to European investors – qualified investors or professional ones, institutional clients or clients for discretionary mandate – is going to change with AIFMD and that will help the European fund of funds industry."

Looking at his own business prospects at EDR, he is equally optimistic. Although the FoHF business lost roughly half its assets between the end of 2008 and the beginning of 2009, within 12-18 months it has climbed back to its highest level before stagnating.

"We have been able since [2011] to stop the redemptions flow but we have not yet seen a huge new inflow in our fund of funds. We've got assets that are relatively higher than they used to be but I don't see a huge interest right now. It will come [in 2014] but for the time being, it's more difficult than it used to be [to raise assets], even if at least it's stopped bleeding."

Col continues: "Now we're going to have maybe two years that are going to be much better. Nevertheless, they are going to be two transitional years, linked to regulation and the AIFMD. But at the end, we'll have the European passport, we will have a unified European [market] and that is going to be very helpful for people like me, managing and selling funds of funds."

He is also looking at deepening EDR's activity with early stage and emerging managers.

"We intend to raise assets at our fund of funds level mostly in Europe, to be compliant with AIFMD, to use the European passport and to grow across Europe. We think also that having at our disposal large funds of funds we give comfort to new hedge funds. For the small hedge fund managers, we need to have a few dedicated products," However, Col is circumspect about this activity until he has a better understanding of what AIFMD will allow FoHFs to do within Europe. He is enthusiastic about allocating to smaller new managers and is also considering seeding them from inception, if the EU rules allow this without complications.

Looking into the immediate future he fervently hopes overall hedge funds will become more popular. He is particularly keen on activist strategies, which he thinks will be "a very successful strategy for 2014", even though its high volatility may put some investors off.

"Many people don't want to have that strategy in their portfolio because when they invest in hedge funds they are looking for less volatile strategies. They are looking for volatility half of what the equity market is." However, Col believes it is important to have it in your portfolio. "If it is a low-volatility, uncorrelated portfolio, it's a small allocation. If it's a more aggressive portfolio, it's a larger allocation. But I like this strategy a lot."

Col also likes the multi-strategy hedge funds, which he believes are back on track. "What we don't like currently are the macro players. But I don't think that some of the ones that we classify as [such] are any more macro players, so they are more multi-strategy with an equity bias, for instance. We put them in the multi-strategy pocket. We don't like the macro player today but most of the big names are not any more pure macro players."

His big challenges over the short term will be dealing with regulation. "We need clarification. Everything is not totally clear: how the actors are going to behave and what exactly the regulators are going to expect from us. But we will find that out in the next six, seven months so it's not a big issue. We have the law and the regulations in the different countries. I don't see really a big threat for us [in 2014] in Europe," he says. "I'm rather optimistic," he adds.

Alexandre Col was recognised for his outstanding contribution to the European FoHF community at the European Fund of Hedge Funds Awards 2013.