It had to happen…eventually. The explosive growth of the market subsequent to President Trump’s election was, at once, both exhilarating and terrifying. Exhilarating in terms of profits and terrifying in that it may all come crashing down.
The market was looking for its bottom, but would it find that bottom, or just spiral downward, out of control and plummet into an abyss of epic proportions? As we now know, it found its bottom and, is currently finding a way back to its former heights.
What is the Takeaway?
On balance, the entire episode should be viewed as excellent news. The explosive run-up created enormous tensions for many investors, and those tensions have been calmed. Hedge funds pursuing equity strategies must now adjust, recognizing that some measure of volatility has returned. Long/short equity fund strategies may find a new environment in which they can flourish, one that has been long absent.
As You Know…
Agecroft Partners, LLC, is an awarding winning third-party marketing and consulting firm that specializes exclusively in the alternative investment field, with a particular emphasis on hedge funds. This is the ninth year in which they have produced a forecast that itemizes anticipated trends in the hedge fund industry. This forecast was published January 4, 2018 and is summarized below.
- Assets under Management
Agecroft Partners acknowledges AUM growth for the past nine years running, and forecasts continued growth, with assets under management increasing by 5.5 percent in 2018.
The report anticipates significant asset rotation within the industry due to investors altering their strategy preferences, as well as reacting to the performance results of individual managers.
Expect to see hedge fund closures continue to outpace new starts in the coming year. Agecroft Partners cites the primary driver for these closures to be performance. Additionally, the report suggests that these closures will hit small and medium-sized funds hardest.
- Pension Funds Are Evolving
Pension funds will continue to invest in hedge funds, but with greater focus on market exposure and the risk profile of individual hedge fund strategies, with the goal of identifying the most promising managers relative to the pension fund’s allocation strategy.
- Globalized Distribution
Agecroft Partners predicts that the rise of specialist law firms, which identify and simplify the requirements of marketing in more than 100 countries, will result in an increased number of domestic hedge fund managers marketing to foreign countries.
- Bullish on Cryptocurrency
The report speculates that cryptocurrency and blockchain technology, currently embraced by more than 100 hedge funds, will continue to grow in popularity within the hedge fund industry, while at the same time acknowledging the genuine risk of loss from cyber attack and, as a result, the loss of investor confidence.
- Growth in Outsourcing
Agecroft Partners projects an increase in outsourcing as the quality and quantity of providers grow. Particularly vulnerable are IT, legal compliance, back office and third party marketing segments of the firm. The report anticipates the numbers of those employed in these functions to diminish over time as outsourcing gains traction.
One might easily find themselves in disagreement with Agecroft Partners on one or more of their predictions. However, it is certain that the industry continues to evolve and the result of this evolution will be change.