New Managers January 2012

The Analytical View
Recent research and surveys relating to emerging hedge fund managers

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Of those research reports and surveys that came out in late 2011, those that retained our attention revealed that young funds had outperformed older funds in 2010; that only 10% of the US foundations which invest in hedge funds will consider investing in new managers; and that 48% of investors, overall, would invest or consider investing in emerging managers (Asian investors being the most willing). Also, a 3-year track record and $100-499m in AuM are the most popular criteria for investors. But, to end on a positive note, new managers themselves expect to achieve returns of 10% or more, and raise around $50m in 2012 each.

Young funds outperform older ones, with less Risk

Small hedge funds outperform mid-size and large funds, and young funds outperform older ones, declared PerTrac, a large provider of hedge fund analytics, in September 2011. Its report, "Impact of Fund Size and Age on Hedge Fund Performance," found that young funds (less than two years old) gained 13.25% in 2010, compared with gains of 12.65% for mid-age funds (two to four years old) and 11.77% for tenured funds (more than four years old).

Moreover, young hedge funds appear to have achieved these returns with less risk than their competitors. PerTrac suggested several possible reasons why young funds excel, including that they were able to conduct portfolio changes more quickly and "under the radar," that their less mature administrative and operational needs result in lower fixed costs, and that new technologies allow them to perform their activities more efficiently in more scalable environments. Monte Carlo simulations indicate this trend could continue in the near and intermediate future, according to PerTrac.

Only 10% of US foundat......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.