Bad start to year for alternatives

Britain’s alternatives industry has experienced a difficult start to 2011, with negative news across the hedge fund and private equity industries exacerbating discontent about the European Alternative Investment Fund Managers (AIFM) directive.

A Bloomberg Markets report showed Britain is lagging America as a hedge fund centre, with only 15% of the world’s top hedge funds in the first 10 months of 2010.

Britain contributed only 15% of the most profitable and top-performing large and mid-sized funds. The proportion was only slightly higher for the rankings of hedge fund managers by size. (article continues below)

In the private equity world, fundraising dropped to its lowest levels in six years during the last half of 2010. Particularly low levels of fundraising were witnessed in Europe, where Britain is still the primary destination for private equity.

Although fundraising is expected to pick up in 2011, the British alternatives industry is uncertain as to the impact of the AIFM directive, which imposes greater regulation on private equity and hedge funds.

After a year in which investments posted returns above the Bank of England, questions were also raised about the sustainability of the alternative investment ­industry’s most touted opportunities.

In the Bloomberg survey, the most prominent examples were its top-performing large hedge fund and second highest-returning mid-sized hedge fund, which were managed by Prosperity Capital Management, a Russian activist hedge fund.

Russian activist hedge fund investors have suffered uncertainties following a government campaign against Bill Browder, the head of Hermitage Capital, previously the country’s largest activist investor.

Mattias Westman, who heads Prosperity, told Bloomberg Markets: “There is a risk, but things are becoming more civilised.”

Last week’s valuation of private equity-owned Facebook, the social networking site run by Mark Zuckerberg, sparked more controversy. An investment by Goldman Sachs and its clients in Facebook valued the firm at $50 billion (£32 billion), or 106 times its annualised earnings, according to Fund Strategy’s analysis of documents seen by the Financial Times.

No British retail managers are known to have bought into the private Facebook offer, although at the end of November SVM held 3.9% of its Global investment trust and 3.5% of its Global Opportunities portfolio in a vehicle managed by Prosperity, the Voskhod fund.