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Alternative Market Briefing

Other Voices: Branding dominates hedge fund flows

Thursday, February 27, 2020

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Donald A. Steinbrugge
Strong performance alone will not attract assets, says Donald A. Steinbrugge, founder and CEO of Agecroft Partners:

Over the past decade, a vast majority of hedge fund net asset flows have gone to a small minority of hedge funds with the strongest brands. Evestment estimates that almost 60% of industry assets are controlled by firms with over $5 billion in assets.

Each year, many hedge fund investors are inundated with thousands of emails and phone calls from managers requesting a meeting. To filter through the overload of information, investors are turning more and more to a firm's brand when choosing which funds to meet and ultimately invest. A brand is an investor's perception of the overall quality of a hedge fund based on multiple evaluation factors that evolve over time. A high-quality brand takes a long time to develop, but once achieved, it significantly enhances a firm's ability to raise capital and retain assets during a drawdown in performance.

Even though most assets are flowing to the largest firms, a strong brand is not defined by its size. Many large hedge fund organizations based in Asia, Europe or other regions outside of North America with a large regional client base might have very little name recognition in North America. There are also many large, well-established firms that have become complacent and have slowly allowed their brand to erode.

A vast majority of the approximately 15,000 hedge funds have less than $2......................

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