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New Managers August 2014

SCOTSTONE COLUMN: Why is it so difficult to attract new money


Why it is difficult to attract new money Ian Hamilton

This column is authored by Ian Hamilton, who is the founder of IDS Group. IDS provides fund administration services in Africa and Europe through Malta. He is also the founder of Scotstone Investments, a company that has fund structures and services for global emerging new managers.

This column is a follow on from July called "Who Pays the Piper calls the tune".

Certain hedge fund managers are complaining that it is difficult to attract new money as investors are shying away from higher leveraged funds.

The first issue is the reduced availability of leverage from Prime Brokers and banks. One would think that hedge funds would be jumping at borrowing at the current low interest rates, however, jump as they may, the banks are simply not lending because of new liquidity requirements under the latest round of Basel ratios. The pre- 2008 levels of leverage are simply not there. In other words, hedge fund managers who have large funds are going to have to live with this. This scenario is not going to change.

The second issue is the changing investor scenario and there is a new breed of investors. One of the key factors is the new money is coming from institutions and not just high net-worth and more speculative investors.

The hedge fund industry is attracting considerable money. This is all coming from institutional investors who do not like high leverage. Institutions are looking for funds that diversify investment concentration in portfolios and thereby reduce market correlation risk. ......................

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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.
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