Panel: Hedge funds still a profitable way to diversify your assets

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Despite their dip in popularity over the past few years, hedge funds are still a profitable way to grow your investments – that was the takeaway from a recent panel event hosted by CFA Montreal, where expert speakers debunked misconceptions about hedge funds. Panelists discussed why investors shouldn’t be so quick to dismiss this asset class and provided tips to get the most from your managers.

The panel, titled “The Use of Hedge Funds by Family Offices and Institutional Investors,” took place on Feb. 23 at Club Saint James in downtown Montreal. Moderator Gregory Doyle, Vice President, Pension Fund Investment at Kruger Inc. spoke with three panellists: Dimitri Douaire, chief investment officer at Patrimonica Asset Management; Nicolas T.H. Dang, manager of absolute return at CN Investment Division; and Marc Gauthier, university treasurer and chief investment officer at Concordia University.

In recent years, hedge funds have gotten a bad rap for their level of risk and price tag compared to their value generated. All panellists were eager to discuss their personal experience with hedge fund management and offer tips for starter or experienced investors to grow their funds.

Chief among the panellists’ tips for benefitting the most from your hedge fund was to open a consistent, productive dialogue between hedge fund managers and partners.

With his extensive background managing quantitative equity hedge funds, Dang elaborated on the importance of better dialogue for more effective management and higher returns.

“We know that hedge funds are two steps, three steps ahead,” Dang said.  “Even if we’re very sophisticated as part of a large institutional pension fund, there [are] always things that we’re catching up on, like technology [….] So we want that transfer of knowledge and that’s super helpful.”

Douaire concurred and emphasized the importance of going beyond the transactional.

“The fact is, that hedge funds think about risk and trades in many more dimensions than other managers that you will have,” Douaire said. “For us, it’s very important to extract as much as you can from that because it […] makes us better.”

Sitting down and talking to those in charge is helpful in making the right choices, especially when it comes to getting your money’s worth of management fees, panelists agreed. The risks associated with hedge funds can be mitigated by open, frequent communication with partners and managers.

To get through difficult stretches with lots of uncertainty, Dang explained, it’s essential to not let yourself be pushed around. “Constructing a portfolio is becoming more challenging,” he said. “It’s an exercise in risk management and sizing to survive during volatile periods.”

Douaire added that the lessons of the pandemic are crucial to learn from so that fund managers, with assets prone to volatility, are better prepared when the next crisis arises—for instance, knowing what type of risk you can’t take.

Doyle brought up the “elephant in the room” of the malignment of hedge funds, specifically around socially responsible investing. According to Douaire, there’s a generational divide when it comes to caring about the reputation of a pension fund’s holdings, but there are ways to reconcile it.

“The challenge becomes, ‘How do we configure a mandate that will satisfy all three generations?’” Douaire said.

When in charge of an investment portfolio that is publicly scrutinized, such as that of a university, Gauthier explained that ESG factors must be taken into account when choosing limited partners and investors. Since universities are expected to be leaders in sustainability, including renewable energy partners, is one example of socially responsible investment choices that represent a positive shift in the financial zeitgeist.

Doyle added that at Kruger, ESG is “just good business,” and all panellists agreed that a push for diverse voices at the bargaining table, not just those of white men, is essential.

Doyle asked how hedge funds compare to other asset classes in tax terms. “It’s worse than stocks, but better than fixed income,” said Douaire.

As for what Gauthier, Douaire, and Dang themselves are investing in, they discussed a mix of idiosyncratic choices separate from larger market trends.

Moving forward, the three panellists of different experiential backgrounds concluded that hedge fund investment doesn’t have to be an unruly relic of the past. Instead, this asset class can act as a significant boon to returns if handled with care.

This story was created by Content Works, Postmedia’s commercial content division, on behalf of PBY Capital Limited, which is a member and content provider of this publication. 

PBY Capital Limited is registered as an exempt market dealer and an investment fund manager with Canadian provincial securities regulatory authorities, servicing family offices and their professionals. For more information, visit: www.pbycapital.com. The opinions and information provided in this article are solely those of the writer and are not to be construed as personal, legal, accounting, taxation, or investment advice, or as an endorsement of any entity.