Mainstream Canadian Banks Must Embrace Alternatives

Mainstream Canadian Banks Must Embrace Alternatives

The 4th Annual Canadian Hedge Fund Award winners were announced on October 27th at a gala reception held in the awesome offices of KPMG – one of the Awards’ sponsors. When the winners of the Awards gathered to celebrate on that balmy evening, they heard a very strong and unequivocal message from Barry Allan, Founder and CEO of Marrett Asset Management (MAM). Barry was at the Awards to accept the 2011 Award for the Greatest Ongoing Contribution to the Canadian Alternative Industry. In his impressive acceptance speech, Barry encouraged early-stage asset managers to stay the course. MAM currently has C$6 billion in assets under management, but he recalled the early days for Marrett, and the hard slog of attracting those first millions, in Canada’s cautious capital markets. He went on to urge anyone who had the ear of the CEO of any one of the big five Canadian banks, to press the case for them to embrace the alternative investment opportunities that exist in Canada.

Indisputably, the naturally conservative Canadian approach to finances has meant our economy has fared relatively well in the post-2008 meltdown, better than our Southern neighbours or allies across the pond. But if our largely unsung collective strength in the alternative sector is tobe harnessed and marketed to the global investor base, this is the time to leverage all that has been learned.

One of the lead sponsors of the 2011 Awards is at the forefront of the initiative for Canadian entities to support our own early-stage managers. Kensington Capital Partners Limited (KCPL), formerly MANNA Asset Management, has in its portfolio 10-12 small, young Canadian fund managers, vetted by KCPL’s due diligence team and approved by portfolio manager Michael Gratch. Structured as a fund of managed accounts, a relatively new structure in Canada, the fund meets two key requirements of today’s understandably wary investors: transparency and the ability to rebalance their portfolio without incurring prohibitive fees. Eamonn McConell, one of the partners of KCPL, has sat on the judges’ panel since the Awards began in 2008. Other judges for 2011 were David Mather (Integrated Asset Management), Peter Hayes (KPMG), and David Kaufman (Westcourt Capital Corporation).

The winners in the four quantitative categories were selected based on performance, or the risk associated with that performance, as measured by their Sharpe Ratio. The distinction was drawn between new funds, defined as less than three years old, but with a one-year track record, and established funds. The other key criteria which had to be met to be considered for an award, was that funds had to be currently open to Canadian investors and domiciled in Canada. The winners for 2011 were:

For ‘established funds’:
Best 3-Year Annualized Return (July 31, 2008 - July 31, 2011):
AlphaNorth Partners Fund
King & Victoria Fund
Rosalind Capital Partners
Best 3-Year Annualized Sharpe Ratio (July 31, 2008-July 31, 2011).
Venator Catalyst Fund
King & Victoria Fund
Marret High Yield
For ‘new funds’:
Best 1-Year Return (July 31, 2010-July 31, 2011).
Vision Opportunity Fund
SW8 Strategy Fund
Salida Global Energy Fund

With markets around the world in chaos, Europe on the brink of a meltdown, and even the most seasoned economists scratching their heads as to what 2012 will bring, it is impossible to imagine what the 2012 Award winners list will look like. But back to Barry Allen’s point in his acceptance speech, alternative strategies will provide the superior returns that all investors are looking for to fund their retirement.
The annual Canadian Hedge Fund Awards celebration showcases the Canadian alternative industry, and has endured through arguably the second worst recession of the century. Maybe now the Canadian banks will seize the moment and support their own, rather than waiting for non-Canadian investors to lead the way?