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Alternative Market Briefing

Darwinian pressure: Even mid-sized ($500m) hedge funds consider consolidation

Thursday, August 10, 2017

Komfie Manalo, Opalesque Asia:

Asset managers are facing a very significant challenge, particularly the mid-sized managed futures hedge funds, said John Harrison, a partner and Group CFO/COO at Amplitude Capital, a systematic commodity trading advisor (CTA). The challenges are coming from pricing, fees, as well as asset raising, he said.

As a panelist in the latest Opalesque 2017 UK Roundtable, Harrison said: "Even for mid-sized companies with sizeable assets and solid track record, we do see a certain pressure to consolidate as a result of a relatively static AUM growth which, when confronted by ever increasing cost base, can cause issues. That is a business risk some managers have to look into at the moment."

He explained that the problem is particularly acute for those running assets below $500m or so. The break-even point for managers continues to increase. The irony is that Amplitude originally came exactly from this fertile ground of small energetic managers, he said and added that the company grew its business from almost nothing to a position where it is today, managing $1.6 billion across four main strategies.

Consolidation in asset management also causes issues for investors

Harrison continued, "The question we should ask is, would a similar business starting up today in London/New York be able to get through? My fear ......................

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