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Hedgeweek Comment: The new investors

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With massive redemptions sweeping the hedge fund industry and vast changes occurring across the industry, it is highly probable that many fund managers are seeking new investors and vice v

With massive redemptions sweeping the hedge fund industry and vast changes occurring across the industry, it is highly probable that many fund managers are seeking new investors and vice versa. But who will these new investors be, and how will hedge funds adapt to entice them into their funds?

One response is to look at market and geographic trends. Lately many large new hedge fund investors have emerged including non-US entities, sovereign wealth funds and Asian investors. Other interest is specifically coming from Russia and other large oil-producing countries in the Middle East, which are awash with cash looking for a productive home.

They may be new kids on the block, but they are becoming big players and, as a result, hedge fund managers are seeing the need to move more resources to these increasingly important geographical regions.

In this new financial world, every business faces the need to adapt in order to survive, and hedge funds are no different. In these markets, it will be the survival of the fittest – and the biggest. Experts are advising new investors to first look at size – does the manager have enough scale to pay and incentivise a high-quality team? Size matters because if assets under management are inadequate, the management’s focus may lean toward fund-raising or taking care of cash flow rather than performance.

New investors will no doubt be willing to take some risk in search of the outsize rewards to be obtained as a result of the market turbulence, but they will seek alpha and will certainly focus on funds that are capable of handling the pressure. In this situation, size matters.

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