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New Managers March 2017

PERSPECTIVES: Hedge funds pivot on equity strategies, Caymansees fewer fund launches, but more from Asia, Nature of hedge fund management start-up industry is changing, Funds of hedge funds continue their consolidation

Hedge funds pivot on equity strategies

A rising number of newly launched hedge funds are employing non-equity-based investment strategies, according to The Seward & Kissel 2016 New Hedge Fund Study, an annual analysis of new hedge funds, from law firm Seward & Kissel. Data in the report show that the portion of new hedge funds using non-equity-based strategies increased to 35 percent in 2016, up from 20 percent in 2015.

"The rising popularity of non-equity-based funds is the story of 2016. New fund managers obviously reacted to a big shift in investor appetites," said Steve Nadel, author of the report and Seward & Kissel Investment Management Group partner.

The 2016 numbers indicate that as non-equity funds become more prevalent, investors are beginning to extract from them concessions similar to those they have previously won from equity-based funds. The percentage of non-equity funds offering special "founders" terms to investors jumped from 29 percent in 2015 to 36 percent in 2016.

Non-equity strategies are defined in the survey as multi-strat funds, credit funds, and some quant funds. All of these fund types have seen a significant spike in investor interest in recent years and it is starting to show in subscription terms which are becoming more accommodating to investors. According to the report, not a single non-equity fund offered tiered management fees to their founders round investors in 2015, but by 2016 25 percent of them did.

Equity funds, for their part, seem to be tightening terms. The percentage of equity funds with such "founders classes" dropped from 82 percent to 75 percent over the survey period. Tiered management fees (which step down as fund assets grow, in recognition of efficiencies of scale) were offered by 40 percent of equity funds this year, up just 5 percent from last year.

Hedge funds have also altered how they structure the business. The survey shows that more hedge funds ......................

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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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