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New Managers November 2019

PERSPECTIVES: Hedge funds and private equity hang on despite headwinds


Hedge funds and private equity hang on despite headwinds

A new report from Cayman law firm Walkers shows that hedge funds are hanging on despite continuing headwinds. New hedge fund launch data compiled by Walkers shows that equity and credit hedge funds continue to have a strong volume of launches despite recent performance challenges and investor outflows in those categories. As a result, managers are thinking through ways to make new launches more investor friendly, including structuring funds to defer registration as a mutual fund - at least in the early years. This structure is also prominent among managers that run digital asset focused strategies. Fee pressure continues to weigh on new and veteran managers alike.

According to Walkers data, 80% of funds surveyed launched with a management fee of less than 2%, and 44% of funds carried a 20% performance fee. There has also been an increase in funds charging performance fees of greater than 20%, though typically these funds have a reduced management fee. 44% of fund managers are also using lock-ups at launch, a reversal of the trend away from lock-ups in the immediate aftermath of the great financial crisis. One year lock-ups remain the most common, but as many as 43% of managers have lock-ups of 18 months or greater. Two-thirds of lockups are 'hard lock-ups' - i.e. investors cannot redeem at all (as opposed to 'soft lock-ups' where redemptions are possible but subject to a fee for the benefit of the fund).

A further 29% of managers are using gates to streamline redemptions. For funds that are considering closing up shop, Walkers has also observed a few trends. Funds with clear, flexible documentation have more options in addressing unforeseen stresses. Managers that maintain a close and open relationship with their investor base can propose restructurings or other solutions that may not be directly contemplated by the fund's documents. According to Walkers, the key for......................

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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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