Steinbrugge: Why the next 15 months will be the biggest asset-raising environment in hedge fund history – Don Steinbrugge


Don Steinbrugge BG, Opalesque Genève for New managers:

The next 15 months will be the biggest asset-raising environment in the history of the hedge fund industry, according to Donald A. Steinbrugge, Founder and CEO of Agecroft partners, a United States-based consulting and marketing firm. Asset flows will be determined by these three factors: the size of the hedge fund industry, the turnover rate of managers within investor portfolios, and net flows to the hedge fund industry. So now is the time to travel and meet investors.

Size of the hedge fund industry

Assets in the hedge fund industry ended the 2nd quarter at a record high of over $ 4.3 billion (BarclayHedge). Most of the growth in assets over the past decade has been driven primarily by the asset mix due to positive performance.

Over the past 10 years, the hedge fund industry has been very Darwinian, says Steinbrugge. Manager rotation within investor hedge fund portfolios is the source of almost all new asset flows to managers. By keeping industry net entries and manager turnover constant, the higher the assets of the hedge fund industry, the more new assets will flow to managers.

Manager turnover rate within investor portfolios

The fluctuating manager turnover rate within the hedge fund industry can have a dramatic impact on new asset flows. For example, a turnover of 15% of managers on $ 4.3 billion in assets translates into $ 645 billion in new flows of assets to managers. If the turnover rate reaches 25%, nearly $ 1.1 billion will be paid to new managers.

Manager turnover is generally determined by how investors perceive the relative quality of a manager relative to others in their strategy, or by changes in the target weightings of hedge fund strategies within the portfolio.

Agecroft expects manager turnover to reach an all-time high in 2022 due to (1) pent-up demand, (2) wide dispersion of returns and (3) changes in hedge fund strategy preferences .

The pent-up demand to hire new managers follows reduced manager turnover during the pandemic. Allocations were generally made with managers that the investor had met before Covid 19 or recommended by their investment consultant. But investors gained confidence in virtual meetings, resulting in more asset flows in H1-2021. Agecroft expects travel to accelerate in Q4 and next year, increasing the pace and effectiveness of due diligence on new managers, and levels of manager search activity – and therefore the rotation of managers.

Market volatility over the past 18 months has resulted in a wide dispersion of performance between managers and strategies. When relative performance is widely dispersed, the manager turnover rate increases significantly.

This same volatility has changed investors’ perceptions of relative value in capital markets. This will impact investor preferences for hedge fund strategies and increase manager turnover.

Net flows to the hedge fund industry

The hedge fund industry has recorded net inflows of nearly $ 149 million in the past 12 months (BarclayHedge), after a decade of almost stable net inflows. Agecroft expects this recent trend to continue due to (1) the strong performance of the hedge fund industry, (2) low interest rates and (3) a two tier fee structure benefiting large institutional investors.

The performance of the past 18 months has revived investor confidence. In the last nine months of 2020 and the first six months of 2021, hedge funds have performed strongly (around 11% and 10%). This renewed confidence will help generate positive net inflows.

Interest rates and credit spreads close to their historic lows make bond strategies relatively less attractive. Many of these large institutional investors will continue to allocate low yielding fixed income investments to hedge fund strategies with higher expected returns and performance uncorrelated to capital markets. Investors who do not view hedge funds as a separate asset class will invest part of their fixed income allocation in hedge fund strategies such as distressed debt, specialist finance, structured credit, reinsurance and relative value fixed income securities, among others.

Hedge fund fees have been reduced to an average management fee of 1.38% and a performance fee of 15.9% (Eurekahedge). What is not usually mentioned is the two tier pricing structure that has been adopted by the industry. Most hedge funds are willing to offer significant discounts on their standard fees to attract large institutional investors. In addition, due to the volume of inflows, 1,144 hedge funds closed to new money (Preqin). This creates opportunities for new managers to fill the void.

What does all of this mean for hedge fund managers?

For managers looking to raise assets and build new relationships with investors, this can be a unique career opportunity to do so, according to Agecroft. Most hedge fund managers have spent very few resources on travel or marketing in the past 18 months. Now is the time to use these resources to present yourself in front of as many investors as possible. The most effective way to do this is to attend introductory Cape Town events hosted by both major brokers and independent companies.

Once investors satisfy their pent-up demand for new managers, Agecroft expects research activity to decline.

This busy travel schedule is also worthwhile for managers who have had an unsatisfactory performance. “To reduce the likelihood of redemptions, managers need to make sure clients understand what led to the underperformance and have confidence in the managers’ future performance.”

The 3 things most managers miss in their E-Capintro / Webinar / Video presentations

Although not new per se, digital channels such as online meetings (“Zoom”), webinars or videos are now widely used by investment managers as 1: 1 or 1: N communications. .

However, few companies have thought about how to strategize and optimize their online marketing efforts and presentations. As a result, an excessive number of investment managers fail to fully reap the benefits of new communication channels, or worse, fail to score due to simple failures in their overall process, presentation or attitude.

Opalesque partnered with Don Steinbrugge of Agecroft and digital marketer Paul Das of ProfundCom for a MANAGEMENT WORKSHOP on September 16 on how to identify and master the three elements that most managers miss in their presentations. E-Capintro / Webinar / Video.

Register here for this free event:

Gaining the Advantage – Introduction to Alternative Investment Cap January 19 – 21 West Palm Beach

Opalesque is a media partner and sponsor of Gaining the Edge – Alternative Investment Cap Intro Florida 2022 which will take place in person January 19-21 in West Palm Beach, Florida and run virtually through Friday February 11.

This will be the first major indie introductory event heading into 2022, taking place ahead of Miami’s “Cover Week” so as not to directly compete with three other overlapping events that will take place the following week.

Organizers expect this to be the largest and highest quality in-person and virtual introductory event in the alternative investment industry. The recent Gaining the Edge 2021 virtual cap introductory event was the largest virtual cap introductory event in the history of the alternative investment industry with over 1,900 registrations.

The organizers also offer a COVID-19 performance guarantee for all managers present in person. If there is a COVID-19 resurgence, where the CDC issues a level 4 travel advisory (or for non-U.S. Managers, if your government authority prohibits you from going to the event due to COVID-19 ), managers will have the option to switch to a virtual registration only and obtain a refund of the price difference between an in-person registration and a virtual registration only.

Subscribe here to receive more benefits (value of $ 698) provided by Opalesque:


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