Pacific Alternative Asset Management Company

Highly commended: Best institutional fund of hedge funds provider

The Pacific Alternative Asset Management Company (Paamco) was formed in March 2000 by four founding partners who had previously worked together in the fund of funds field for some years. All had spent the majority of their careers working together researching hedge funds, primarily on behalf of large institutional investors such as public retirement funds.

Most investors are institutional. Currently over 70% of Paamco’s $9.8 billion of assets under management come from pension funds with 25% from institutional clients including sovereign wealth funds. Paamco manages portfolios mainly for clients based in North America, which make up 80% of invested assets, but some 10% comes from clients in the Middle East and Africa, 8% from the UK and Europe, and the remainder from Asia and South America.  

Its flagship fund of hedge funds (FoHF) is the $6.9 billion Moderate Multi Strategy fund which was opened in 2001 and is designed to achieve an absolute rate of return over a full market cycle.

Paamco believes there are five key elements enable it to instil confidence in its clients and attract investment: a sector specialist approach, position-level transparency, a strong focus on governance, a bias towards emerging managers and an institutional investor focus.

The company says these principles have enabled it to attract and retain investors. Over 60% of its large ($100 million plus) investors have been with Paamco for over five years while 50% of new AUM in the past five years has come from existing clients.

Transparency is important to Paamco and its insists all managers in which it invests provide a high level of detail on investment processes. Paamco is rare among FoHFs in requiring that all its hedge fund managers provide full position level transparency. Paamco believes this information is critical to the investment process in order to measure the exposures of individual managers, to assess prospective managers and to construct and evaluate its portfolios.

The company’s systems are able to capture regularly, mostly through proprietary tools, the risk and behavioural characteristics of individual portfolios and of the combined portfolios. Paamco integrates this risk information combining it with asset allocation and the manager selection processes.

Paamco says a sector specialist approach is the most effective means of manager selection and alpha generation. Each of its specialists focus on one or possibly two strategies in which they have years of experience and an extensive personal network from which to source of their new manager ideas.

Rather than relying on third party databases which often contain stale information, Paamco believes the best and most current intelligence on what is going on in a particular hedge fund strategy comes from others working in that strategy.

Paamco usually initially evaluates over 500 new managers every year. From these it generally goes on to perform extensive due diligence on 20 to 25.

See aso profile of Paamco, September 2010