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Alternative Market Briefing

Other Voices: Institutionalisation has secured the future of hedge funds, but industry must further evolve

Wednesday, February 08, 2017

From Christen Thomson, Citigate Dewe Rogerson:

Reading some of the mainstream financial press, you would be forgiven for thinking that the hedge fund business model is dead. One august news organisation headlined one particularly gloomy story, "The Golden Era of Hedge Funds Draws to a Close With Clients in Revolt". The media narrative is of industry contraction, investor redemptions and poor performance (derived from misleading comparisons between hedge fund indices and equity indices).

It is undoubtedly the case that the hedge fund industry faces a highly challenging external environment, characterised by scrutiny, hostility and negativity. However it is worth considering the underlying "mega-trends" that are really driving the hedge fund industry "institutionalisation, globalisation, regulation and retailisation.

Let's take institutionalisation first. The biggest post-crisis trend in the hedge fund industry globally has been that the new money coming in has been very largely institutional, typically from pensions, endowments and sovereigns, while much of the high net worth money has left the industry. That has meant that the overall balance of assets under management has gone from being roughly 50-50 high net worth/institutional pre-crisis to a big majority institutional now. That has been a game-changer for the industry.

It has meant that the industry has had to become much more institutional itself "in terms of operational infrastructure, risk managemen......................

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