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Laxman Pai, Opalesque Asia, for New Managers:

Hedge funds led by new managers are responding to pressure to outperform against a backdrop of elevated interest rates, pointed out a new study.

The 2023 edition of The Seward & Kissel New Manager Hedge Fund Study, revealed a substantial increase in the proportion of new managers launching with an incentive allocation hurdle, guaranteeing investors a baseline return before the manager takes a performance allocation.

As per the study, the share of new funds offering incentive allocation hurdles reached 40% in 2023, up from just 15% in 2022. This shift indicates investor demand for strong returns at a time when a risk-free interest rate remains an attractive alternative.

However, investors accepted reduced liquidity in exchange, continuing a trend first highlighted in the study's 2022 edition.

In 2023, 78% of equity funds and 71% of non-equity funds employed lock-ups (prohibiting investors from withdrawing capital for a stated term) or investor-level gates (restricting the amount an investor may redeem at any given time), up from 69% of equity funds and 67% of non-equity funds in 2022.

Meanwhile, in addition to securing greater breathing room through liquidity restrictions, less than half of new managers in 2023 avoided offering reduced management fees or incentive allocation rates through their founders' classes.

Just 49% of equity funds (down from 59% in 2022) and 47% of non-equity funds (down ......................

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