Hedge Fund Marketing Alliance

Two Hedge Fund Strategies Picking Up the Slack

January 23, 2012

There are a few bright spots as hedge fund managers come off a dismal year for hedge fund performance. Two hedge fund strategies are showing the biggest inflow from investors looking to cash in on volatility.

Discretionary and systematic macro funds, which actively trade across all asset classes, showed a net inflow of $7.9 billion in the fourth quarter of 2011, according to data from Hedge Fund Research published in Hedge Funds Review.

A macro fund takes either long or short positions in various equity, fixed income, currency, and futures markets, depending on a manager’s view about overall economic or political situations in various countries or regions.

The other strong performer was relative value arbitrage strategies, which had net capital inflows of $5.9 billion in Q4 2011. Relative value arbitrage seeks to take advantage of price differentials between related financial instruments, such as stocks and bonds, by simultaneously buying and selling the different securities, thereby allowing investors to potentially profit from a difference in value in the two securities.

Relative value arbitrage was the only overall hedge fund strategy category to generate positive performance in 2011, with gains of 0.51% for the year, according to Hedge Funds Review.

“Investors have been following “a consistent theme of reducing directional equity market beta while increasing exposure to currency, commodity and fixed income strategies,” said Kenneth Heinz, president of Hedge Fund Research.

Despite less-than-stellar returns, investors still allocated $70 billion of net new capital across the board to all hedge fund strategies in 2011. And performance gains by some of the larger, more established hedge funds helped lift the total assets for the industry up to $2.01 trillion.

Funds of funds, however, have continued to see their assets shrink, as investors withdrew roughly $8 billion last year. Total assets managed by FoF managers have fallen to $629 from $673, due to outflows, poor performance, and perhaps investors questioning the value of an extra layer of hedge fund fees.

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Headwinds Faced by Hedge Fund Marketers

January 16, 2012

Not only did several high-profile hedge fund managers such as John Paulson have a tough year in 2011, it now appears that performance data for the entire industry is being called into question.

Research indicates that the aggregate data used by hedge funds to justify their performance edge has been systematically inflated or manipulated, writes James Saft in an article published by Reuters. He cites a study by academics Adam L. Aiken, Christopher P. Clifford and Jesse Ellis which indicates that the hedge fund industry may be over-reporting its returns to investors.

The reason is that participating in hedge fund indices, which are used to tout performance and attract investors, is entirely voluntary. This means that well-known hedge fund benchmarks may overestimate returns for the industry, because poor-performing funds can simply choose not to submit their statistics.

“The industry is like a poker player who tells you about his big wins, but changes the subject to sports when he’s on a losing streak,” writes Saft.

What’s more, the hedge fund industry claims that funds regularly rack up 3 to 5 percent of “alpha” on top of market-driven beta, on a risk-adjusted basis, but may be spurious as well. By adjusting for the self-selecting behavior mentioned above, the study authors calculate that most funds generate an alpha of only 0.20 percent annually.

“Rather than fund managers having the ability to consistently deliver superior risk-adjusted returns, it appears that much of the previously documented skill of hedge fund managers can be explained by the upwardly biased returns data employed by researchers,” the study authors concluded.

All this points to a major challenge for hedge fund marketers in 2012. Not only will you have to contend with disappointing returns from last year. You will have to work doubly hard to counter the arguments being made against the hedge fund value proposition, and prove to current and new investors that participating your fund does in fact justify the added expense.

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Could 2012 Be a Better Year for Hedge Fund Startups?

January 9, 2012

During the financial crisis, investors flocked to the safe haven of big, well-established hedge funds. But the lackluster returns of some of these funds may have tempered the notion that bigger is better. Smaller funds and hedge fund start-ups offer a healthy premium to investors brave enough to take the leap, says Jeroen Tielman, CEO [...]

Hedge Fund Marketing Year in Review

January 2, 2012

It’s no secret that 2011 was a disappointing year for the hedge fund industry in terms of overall performance. Despite that, investor interest in alternative investments remains strong and the industry is not seeing the spike in redemptions that accompanied the 2008 crisis. Among the developments we covered in 2011, we watched as funds adjusted [...]

Hedge Fund Marketers Have Less to Fear in 2012

December 26, 2011

Although there are storm clouds on the horizon, including the Eurozone crisis, volatile markets, and a hangover from mediocre performance in 2011, hedge funds may have less to fear in 2012 says Donald A. Steinbrugge in a guest article for Opalesque. Steinbrugge is Managing Partner of Agecroft Partners, a global consulting and third party marketing [...]

Could Bridgewater Be Marketing to Family Wealth?

December 19, 2011

Could Ray Dalio’s Westport-based Bridgewater Associates be going after family wealth with his new All Weather Portfolio III fund? That’s the question raised in a Connecticut Post article recently. It’s a result of Bridgewater listing a bargain buy-in price of $100,000 in a U.S. Securities and Exchange Commission filing this past week. Some industry insiders [...]

Are Hedge Fund Managers Born or Made?

December 15, 2011

Nature versus nurture? The argument is as old as Sigmund Freud’s first couch and might never be resolved. Still, the question remains for every field of endeavor, hedge fund management included: Do you need to be born with something special to do this well, or can anyone be trained to do this? A recent blog [...]

Specialist Funds Prosper Through Economic Storms

December 12, 2011

Fundweb in the UK recently profiled Smith & Williamson, a firm that has so far weathered the beating that many other funds have suffered by focusing on two market niches where investor interest is still keen. Smith & Williamson has roughly £11.5 billion (US$ 17.9 billion) of funds under management at October 31, 2011. The [...]

Why List with Hedge Fund Databases?

December 7, 2011

An earlier article on this site explained how you can use databases for marketing your hedge fund to investors who might be interested in your investment strategy. But capital introduction is a two-way street, so it’s just as important that you make it easy for investors to find you. There are two kinds of hedge [...]

Goldman Seeding Hedge Fund Startups

December 5, 2011

Goldman Sachs Group Inc. is turning to the less risky business of providing capital for those who want to start their own hedge funds, reports the Wall Street Journal. Goldman has raised roughly $600 million from pension funds, wealthy families and large institutions to invest in 10 new hedge funds. Each hedge fund startup is [...]

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