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New Managers November 2018

PERSPECTIVES: Walkers survey: 2018 was a positive year for new fund launches

 

Walkers survey: 2018 was a positive year for new fund launches

Despite bumpy performance, 2018 has still been a generally positive year for alternatives according to a recent survey from Cayman law firm Walkers. The annual report on trends in the alternative investment industry shows that so far this year there has been a steady stream of new fund launches especially in hedge funds and private equity. Notably, many new hedge funds are coming to market with headline management fees of 2%, defying recent downward pressure.

Hedge fund performance fees are also creeping back up. In 2018, 54% of new funds launched with a 2:20 structure, up from 49% in 2017. Investors who want to bring down that overhead have had to do so through side letters, or by going into founders share classes that have lower fees but longer lockup periods - all indicators that managers are feeling a renewed sense of confidence when it comes to negotiating with allocators.

Data in the Walkers survey shows that lockup periods have also evolved. Half of hedge funds require a lockup period of 18 months or more - up from 39% last year. Hard lockups are becoming more common as well, meaning that investors can't pay an early redemption fee to get out before 18 months have passed. 25% of funds are using gates to control redemptions up from 20% in 2017. Alongside new funds, Walkers notes that 2018 has been a busy year for restructuring existing hedge funds in anticipation of investor demand. Some firms have altered their mandates in order to participate in the growth of cryptocurrencies as an asset class. Others have reopened funds to outside investment.

As we move into 2019, Walkers expects to see more activity around cryptocurrency custody issues as well as increased scrutiny on hedge fund performance given recent turbulence in the market. 2018 has also been a bumper year for private equity. Mega fundraisings have grabbed headlines, but there is also strong activity ......................

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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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