Home Banking Hedge fund managers talk about growth in the economic recovery

Hedge fund managers talk about growth in the economic recovery

by internationalbanker

By John Manning

With the US Federal Reserve starting to wind down its monetary policy of quantitative easing, hedge fund managers are finding investors returning in greater numbers. The economic crisis has however brought about great changes in the way that hedge funds are managed and how investors view the funds.  The funds that have made it through the crisis relied on focused strategies. Here are some collected opinions of top hedge fund managers on the effect of the financial crisis, how they weathered it and how the perceive the industry will grow moving forward.

Najy Nasser of Headstart Advisers noticed that “despite the negatives, the financial crisis brought a number of positives for our business and the hedge fund industry in general.” He believes that with the challenges and flight of investments that the financial crisis brought, it also “uncovered a myriad of shortcomings in an industry that had become saturated with many sub-par managers, not least a general lack of transparency and liquidity, as well as a prevalent long bias and a large degree of crowding amongst managers.” The hedge funds that have survived have had to differentiate themselves and prove a record of strong performance; these survivors can now reap the benefits of weathering the storm.

Investors now require a greater degree of risk management as Piers Denne, of Future Capital Partners, puts it “the other result [of the financial crisis] is increased aversion to risk. These days, investors are looking for the same returns with a much greater degree of risk management. Managers who have been able to provide investments in growth areas while providing significant downside protection have thrived since the downturn, and we have structured our investments in that way since we started in 2000.”

“[Investors] expect greater transparency and much more frequent communication. There is a real shift in the hedge fund industry, where investors want more than a report each quarter; they want to be informed on a daily basis – especially when the environment shifts. We see those providing greater transparency gaining greater market share.”  Lucas Turton, Windham Capital Management adds.

Transparency is also important and has allowed Brown Advisory to weather the storm, Thomas Graff, partner and head of fixed income, explains “The investing world is complex and sometimes opaque. Brown Advisory’s investment philosophy is not. In the wake of the severe market downturn, institutional and private clients are drawn to Brown Advisory’s sophisticated, transparent, fundamental, bottom-up, team approach to investing. The success of the firm has driven enormous growth during a period when most firms have contracted. Client assets grew more than 25 per cent compounded over the past five years and more than doubled from two years ago – even during the market fallout of 2008 and 2009.”

It is also important to create good relationships with clients and understand their needs and as a fund that has survived through the crisis, Gina Germano of Goldbridge Capital Partners, managing partner and head of investment grade, asserts that “to build a successful business in the current environment we need to ensure we deliver performance and align ourselves with our clients.”

David Rawson Mackenzie, founder of Centurion Fund Managers, also emphasizes the need to expand towards emerging markets to create more diversity and a balanced portfolio “Our strategy has always been to achieve a more balanced approach by developing our business internationally and taking advantage of opportunities in new and emerging markets as they arise. One such example is Asia, where we are already having some success in signing up new distributors.”

It might also be wise to adopt a high frequency strategy like Romy Jardine and Bob Torkelund of HFT Capital to avoid big upsets “Because of our scalping trading strategy, having positions only open for up to three minutes, we are not so worried about the direction of the market. As long as they move we can generate some revenue.” They were able to avoid the larger effects of the crisis using this strategy and retained funds.

Like Chin Pu Ma and Chien Wang, Asian Century Capital, managers can manage risk by having easily closed positions and “manage liquidity risk using the rule of thumb that at least 50 per cent of the portfolio should be capable of being closed out within two weeks at reasonable market prices.”

These fund managers believe, there is still a lot of money available to be invested into hedge funds, but they need to show that they have managed to improve their risk management. They also need to form a closer relationship with the clients and become more transparent in their investments and try to align the client’s interests with theirs. Strategies also need to be geared towards an ability to react quickly to changing market conditions.

Fund managers are optimistic about the capital available for investment in hedge funds and with the signals being sent out that the economy is indeed recovering; investors are flocking back, even though they are now more discerning as clients.

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