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New Managers May 2012

Fundana Series
Is the performance in the first year of a new hedge fund a leading indicator for a good investment?

 

Is the performance in the first year of a new hedge fund a leading indicator for a good investment?

The Fundana series of articles discusses Investments in Emerging Managers; it derives from the real world experience of the Fundana team. Fundana is the investment advisor to several Funds of Hedge Funds and directs at least half of its new investments to Emerging Managers. The investment process typically involves allocating a small amount Day 1 or Early Stage (defined as less than one year after the fund's launch) to new managers who have strong pedigrees.

The objective of this series of articles is to share thoughts around our key observations. It does not aim to be "statistically significant" but to create a dialogue around those observations.

The Emerging Managers space is currently in vogue. Following the 2008 credit crisis, allocators focused first on the opportunity to invest with previously hard-closed Blue Chip hedge fund managers. Now that most of those funds are hard-closed again, investors are taking another look at Emerging Managers.

This article looks at the performance of hedge funds in their first year of operations, how it has evolved over time, and whether it can give a good insight into the future success of a fund.

We will focus on the small and mid-sized launches (typical Day 1 assets under management ("AUM") of between $20m and $500m), as Fundana does not invest in the very large new launches (>$1bn at launch). The dataset has been compiled from all the new investments made in our Funds of Hedge Funds since January 2006, encompassing 58 Day 1 / Early S......................

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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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