The changing face of hedge fund branding

There was more evidence last week that alpha-centric investing is rebranding itself.  Clearly alarmed about the negative imagery now associated with the term “hedge fund”, several alternative asset managers have adopted the moniker “absolute return” or have simply dropped any reference to alternative investments from their name.

One good example is the rebranding last week of Chicago’s Harris Alternatives LLC.  The firm adopted the name of its flagship fund, calling itself Aurora Investment Management since “Chicago already has too many Harrises“.

But notice another subtle change.  The firm also dropped the “Alternatives” bit in favor of the more traditional “Investment Management”.  In reference to investors’ habit of referring to Harris as “Aurora” all along, Pensions & Investments saw this as a case of “if you can’t beat ’em, join ’em.” But that observation also clearly applies to the firm’s decision to position itself as a provider of traditional investments – not just alternatives. (In fairness, Aurora’s home page makes it clear that the firm is still solidly in the alternative asset management business.)

Aurora isn’t alone.  Bridgewater Associates was recently crowned by Fortune Magazine as “The World’s Biggest Hedge Fund Manager”.  Yet despite this achievement, Fortune reports that Bridgewater “doesn’t use a lot of borrowed money” and that Dalio “hates being called a hedge fund manager.” (Though oddly, Fortune also says Bridgewater’s leverage ratio is 4:1, higher than the hedge fund industry average.)

Meanwhile, traditional investment managers continue to launch sorties into alternative territory.  More and more traditional UK asset managers are apparently adopting the “absolute return” moniker in effort to expand their product offerings.  As P&I also points out in this article:

“These strategies are offered by traditional long-only managers in equity, fixed-income or multiasset strategies. They offer downside protection, fees between those charged by long-only firms and hedge funds, and the security of being regulated by the U.K. government – thus sometimes winning them a “hedge fund light” sobriquet…”

“These mandates offer the hope of some downside protection” as well as a share in equity returns once markets recover, “so you’re not giving up on equities,” said Tim Hodgson, senior investment consultant at Watson Wyatt Worldwide Inc., Reigate, England.”

If you’re having a deja vu right now, you’re not alone.  “Downside protection” while “not giving up on equities” sounds a lot like a 130/30 fund – and those aren’t new.  Oh, wait…Continues P&I:

“The strategies aren’t new. However, many investors, including DC participants, are more willing to invest in a “hedge fund light” strategy created by a traditionally long-only manager in a regulated account format, said Iain Stewart, fund manager at Newton Investment Management Ltd., London. Mr. Stewart runs the £486 million ($681 million) Newton Absolute Intrepid strategy, which he describes as being “very much an old-fashioned investment fund.”

So there you go.  Burned by equity beta, investors aren’t willing to give up on alternative strategies.  They just don’t want to buy them in a hedge fund legal structure.  Traditional long-only investors are responding with what amount to kinder gentler hedge funds.

Similarly, hedge fund firms are striving to show investors that they have moved beyond the stereotypical hedge fund marketing dogma.  They are no longer risk-taking lone wolves.  Now they’re just regular asset managers who happen to pursue alpha-centric strategies.

The result is that asset managers of both stripes are welcoming each other’s customers with a smile.

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