London hedge funds focusing on US rather than Europe

More and more London-based hedge funds groups are looking across the Atlantic for investment opportunities.

Winton Capital, Odey Asset Management and Cheyne Capital are just a few of the big names refocusing their attention on the US market because the potential there is markedly more pronounced than in Europe.

The Financial Times reported that this strategic change comes on the back of investors in North America “significantly” boosting their allocations to hedge funds, especially in pension schemes.

One of the biggest reasons for the shift from Europe to America is to do with the Alternative Investment Fund Managers directive (AIFMD).

Hedge fund groups from the UK believe that tougher marketing requirements imposed by the directive have made it harder to access fresh sources of capital on the continent.

Consequently, leaders in the industry have felt that they have little leeway to make progress in Europe – it is as if they have been unfairly targeted.

“Europe is going out of its way to make it difficult for investors to invest in hedge funds,” Troy Gayeski, senior portfolio manager of hedge funds at the New York-based fund SkyBridge, told the newspaper.

“The US is still the largest market with the deepest pools of capital and [UK hedge funds] would be crazy to not at least try to expand.”

The AIFMD came into effect in the UK last year. It has three aims: to enhance supervisory practice among EEA competent authorities; to boost investor protection; and to improve efficiency and cross-border competition.

Don Steinbrugge, managing partner at the hedge fund consultancy Agecroft Partners, told the Financial Times that US pension funds are moving money from fixed income and redirecting it to hedge funds – this is fuelling growth.

According to the Financial Conduct Authority, the UK’s hedge fund industry manages £285 billion, with 20 per cent of assets in the hands of 20 large organisations.

Hedge funds are now the third most popular type of investment, after property and private equity.