Tuesday, November 5, 2013
Daniel Saul Och presentation
Daniel Saul Och
Thanks, Tina. Good morning, everyone, and thank you for joining us. This morning, I'll briefly review our year-to-date investment performance and our assets under management. I'll also update you on our capital flows and on the environment we see for investment opportunities globally.
During the third quarter and again in October, we generated strong performance with low volatility for our fund investors, further extending the strong absolute returns we generated in the first half of this year. The flexibility we have to move capital across strategies and geographies was again evident, and we remain highly opportunistic in capitalizing what we viewed as the best investment opportunities.
Our investment teams operate within the framework of our consistent and disciplined process to identify the opportunities globally. This approach has been central to the repeatability of our returns historically and the subsequent value we have created for our fund investors.
We remain confident that allocations to hedge funds will grow. We believe institutional investors will continue to increase the proportion of their portfolios, investing with alternative managers to enhance their equity and fixed income returns. According to HFR, net inflows to hedge fund industry during the third quarter of this year were the highest in 9 quarters, and year-to-date, they exceed those for all of 2012, suggesting an improving trend line. While these are just a couple of data points, we believe that we are well positioned to benefit as capital allocations to the industries increase.
Now let me turn to our assets under management. As you saw in the 8-K we issued this morning, our assets under management as of November 1 totaled $38.5 billion. This amount reflects growth of $5.9 billion or 18% from $32.6 billion on December 31. The year-to-date increase was driven by approximately $3.5 billion of performance-related appreciation and $2.4 billion of net inflows, which includes the 2 CLOs we closed this year.
Pension funds and private banks remain the largest sources of our net inflows year-to-date. We continue to experience strong interest from fund investors across our platforms and have made solid progress in establishing relationships with new investors. Excluding the CLOs we've raised, our net inflows through September 30 have improved significantly year-over-year, driven by an increase in our gross inflows, which are more than 50% higher than they were for all of 2012. Although we can't predict future flows, the trend in our net flows appears to be improving.
We also made significant progress in expanding the capabilities of our fund investor relations team through additional hires globally and restructuring the team to focus on important sources of a new capital. We believe that these steps position us to attract significant additional assets, not only to our well-established multi-strategy platforms but also to our growing credit, real estate and long/short equity platforms. These 4 areas remain our strategic priorities for asset growth, although we continue to look for additional opportunities to meet the needs of our fund investors.
Now let me give you a quick update on our fund's investment performance. Year-to-date through October 31, our Master Fund was up 10.9% net, our Europe Master Fund was up 10.1% net, and our Asia Master Fund was up 10.5% net. These returns were generated with 36% of the volatility of the S&P 500 Index on a weighted average basis for these funds.
Our year-to-date performance continued to be driven primarily by our long/short equity and credit-related strategies. During the quarter, we took advantage of market volatility to enter a long/short equity allocation, where our focus remains on selecting positions with defined events and catalysts while also seeking investment opportunities with strong underlying fundamentals.
We remain fully invested in the Master Fund. In the U.S., with an improving economic backdrop, we continue to be cautiously optimistic about growth prospects for the medium term, but we remain patient, thoughtful investors. We believe the current environment plays to our strengths and our global reach.