Changing investor preferences: flows from bigger to smaller managers

This year saw a small outflow of funds from bigger managers and inflows into smaller hedge fund managers, said Duncan Crawford, head of Hedge Fund Sales team at SocieteGenerale during the Opalesque 2017 UK Roundtable.

Crawford noted that while hedge fund assets have increased from $2.3 trillion in January '08 to about $3.2 trillion assets now, much of that has gone to the bigger managers. However, investors' preference has lately been shifting towards smaller hedge fund managers and as they recognize they provide good returns, if not better compared to their much larger peers.

He said, "Institutions are clearly more comfortable with smaller hedge funds than they were when they started allocating directly. I think they have always realized that they are more likely to get higher volatility, more alpha and more diversified returns if they go for smaller managers, and perhaps, we are finally seeing that happening. I mean, it's certainly seen in the numbers at the moment. While this doesn't take us back to the days when Amplitude Capital started in 2005, it's certainly helpful."

Also fund of funds were largely been bypassed, with institutions going directly to hedge funds, and most of the flows were allocated to the biggest funds for a number of reasons such as allocating to bigger funds had the least job risk for the decision maker.

Fund managers pressed to innovate or change to stay in business

With the current market condition, there haven't been so many managers launching even at the $20m, $30m, or $50m level for some time now, Crawford said. Indeed, there are managers with a few hundred million in assets that are looking to join up with other managers, with many not......................

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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.