The good news is that the hedge fund industry is about to surpass its high water mark of roughly $2 billion in assets sometime during 2011, reports the Financial Times. The bad news is that the turmoil of the past two years has left the fund industry permanently scarred. Investors, particularly the large institutional investors responsible for big inflows of capital right now, are far more demanding of in terms of transparency, liquidity, and reporting.
As a result, many fund managers are noticeably more cautious in their approach to investing. It could be both the fallout from the Madoff scandal, increased regulatory oversight, plus the uncertainty in both the Middle East and European markets. But several of the biggest and best-known fund managers such as Brevan Howard, Lansdowne Partners, Och Ziff and Citadel saw returns well below their historical annual averages in 2010.
This naturally puts pressure on their fundraising and hedge fund marketing efforts. And prime brokerages are coming to the rescue.
Investors are clamoring for high-transparency, high-liquidity structures such as managed accounts or European Ucits funds. Prime brokerages such as Deutsche Bank have been helping funds break into this space, offering a platform from which managers can launch their own versions of these structures.
The biggest launches of 2010 were spin-offs from Wall Street’s biggest banks. The largest was Azentus, run by the former head of Goldman Sachs’ Principal Strategies unit, which raised an eye-popping $1.5 billion. Many of these launches, including Azentus, used the serves of a capital introduction team available through their prime brokerages.
These capital introduction teams are crucial in putting both investors and new funds together. They also help fund managers get exposure at the numerous bank-run industry events that take place each year.
“Cap intro is still obviously very important for start-ups, but it’s very important for big funds as well – we help them get into less well-known markets like Korea, or even areas of the world that are major economies but are tough for hedge fund managers to break into like Japan,” according to Edgar Senior, global co-head of capital services at Credit Suisse.
Prime brokerages are also helping fund managers find and hire qualified professionals to staff their growing marketing and compliance departments.