New Managers March 2012

The Analytical View
Several analysts discuss investing in new managers

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Established fund firms out of favour among researchers

Emerging managers lap investment elephants: Ted Krum

Ted Krum

In his update paper on fund performance, No Contest: Emerging Managers lap investment elephants, Ted Krum, Vice President and senior investment program manager at Northern Trust, a large wealth and asset manager, may be talking about long-only funds, but, he told Opalesque, a lot of it applies to hedge funds too.

In his eighth study of emerging fund managers (in the last 20 years), which are defined as the smallest firms making up the last 1% of institutional market share, the paper finds that once again they often can provide better returns and, strikingly, better downside performance than the household names. By 2010, the median small manager outperformed the median large firm by 72 basis points per year; furthermore the largest investment firms kept on getting larger (even with weak returns).

"In the last 20 years, there were times when small managers did not outperform the large ones," he explains. "In particular, in a market environment which has a lot of liquidity being dumped onto the financial markets, some of the smaller managers may find it difficult to keep up because the bigger firms, in ever increasing concentration, will be making up the majority of the market."

But the consistency that he found each time in his research is the greater dispersion; emerging managers do not always outperform but their results are more dispersed with higher highs and lower lows.

"As larger firms make up the majority of......................

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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.