Supporting The Next Generation of Hedge Fund Managers
New talent is important to any industry. Without new entrants and fresh ideas to challenge existing orthodoxies, industries can stagnate. That is particularly true for the global hedge fund industry, which is continually evolving in order to meet investor demands.
That is why it is good news that the number of new hedge fund launches has increased this year, according to Hedge Fund Research, the industry data provider. 289 new hedge funds were launched in the first half of the year, which puts the industry on track to beat last year’s total of 561. It follows several years of falling numbers of new launches and suggests that a corner has been turned.
But new hedge fund launches do face many challenges. The recent Hedge Fund Emerging and Startup Manager Forum in Zurich highlighted some of these. It can be difficult to raise capital without years of track record. In many jurisdictions the costs of regulatory compliance are high. Operational infrastructure is also increasingly costly and that means that the “break-even” point in terms of assets under management can take time to reach. It can be hard to get the top tier service providers to support smaller managers.
When I was with the Alternative Investment Management Association (AIMA), the global hedge fund trade body, we launched special Next Generation Manager groups to look at some of these concerns in more detail. We found that there were areas that emerging managers could focus on in order to help their chances.
One of those key areas was marketing. Many startup managers believe that it is better to stay “under the radar” and let their performance speak for itself. While this may be laudable in theory, in practice it can helpful to be on the radar of prospective investors.
How can that be achieved? One way to think of it is in terms of digital profile, ie what comes up on page one of a Google search. If nothing comes up, that is often a red flag for potential investors.
On the other hand, thoughtful coverage about your firm from prestigious news outlets can be very helpful, both in terms of educating those prospective investors about your strategy and in terms of reassuring them about your credibility.
From our experience, those startup managers who have understood the importance of this have often been those who have been successful in raising assets. Conversely, those that ignored this are often those who have found it difficult to raise money.
Christen Thomson is Head of Hedge Funds for Citigate Dewe Rogerson.