Newsreel: “Subscription gates”, Darwin and free trade in hedge funds

21 Jun 2009

We’re in Chicago this week for the Managed Funds Association’s Forum 2009.  More on that later.  But for now, here is a compilation of some stories that caught our eye last week…

Gates designed to keep investors out, not in

It was bound to happen.  Reuters reports that:

“A small number of top hedge funds are once more shutting their doors to new clients in a sign that investors are putting their cash back with the best performing managers, said fund of funds Corazon Capital.

“While heavy outflows last year meant almost all hedge funds were open to new investors, Barrie Duerden, director of Corazon Capital, told the GAIM 2009 conference here that in recent weeks some managers were now turning away business again.”

Gated Communities

As in real estate, however, such “gated” communities are for a ratified crowd.  While “top hedge fund” are closing their doors, Reuters also reports that most hedge funds have ramped up the marketing machine, quoting one participant at a recent conference as saying:

“Normally a few funds would contact me to arrange meetings before the conference, but this year about thirty called or emailed…I wouldn’t have time to see them all even if I wanted to.”

Darwinian No More

The Economist evokes Darwin again (as it likes to do) to describe recent hedge fund culling.  But if the evolution of species requires competition, then ironically, the seeds of the next overpopulation may be planted in today’s somewhat-less-than-competitive environment for hedge fund investing…

“This Darwinian process may have helped those managers who survived. A smaller industry means there is less competition for profitable opportunities. Work by Bill Fung and Narayan Naik of the London Business School shows that one of the best periods for hedge-fund outperformance occurred in the aftermath of the collapse of Long-Term Capital Management in 1998. Then, as recently, market prices moved erratically, creating anomalies to exploit.”

British pension manager Hermes also sees a temporary respite from the Darwinian competition.  According to Reuters

“Hermes Fund Managers plans to raise its exposure to hedge funds because there are attractive trades to be made with less competition from banks around, a firm executive told Reuters on Wednesday.”

Workin’ for the Man

One company who is clearly relishing the lull in competition is Man Group.  According to the FT, the firm’s stock is up a whopping 85% since March.  Reports the paper…

“Strong demand from one hedge fund also helped rekindle vague takeover speculation. Man has climbed 85 per cent from March lows amid persistent talk that it could be a target for an investment bank or Middle Eastern buyer.”

Separately, the FT reports that the hedge fund industry is “poised for a reversal in fortunes.”

Free Trade in Hedge Funds

PWC says in its recent 102 page anthology of hedge fund regulation around the world that the “rules are changing”.  As this chart from the report suggests, however, this doesn’t mean protectionism.  Foreign domiciled hedge funds continue to face a relatively level playing field as domestic funds when it comes to taxation…

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One Comment

  1. Paul
    June 30, 2009 at 11:36 am

    Lots of intersting news stories.

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