Investor appetite for hedge funds has soundly recovered from the lows of the liquidity crisis. But the rules of the game have changed dramatically and likely forever.
Investors are still willing to pay traditional hedge fund fees for proven outsized risk-adjusted performance – but remain extremely suspect about paying for beta. And on the liquidity front, status quo simply will not do going forward. Investors are aggressively demanding flexible liquidity terms and insisting on structures that meticulously match the underlying liquidity of a specific strategy. Demand is back – but investors are making more demands of their own than they did in the past. And some of the tools that hedge fund managers employed previously – side pockets, sidecars, etc – are no longer an option, leading to more systemic changes rather than on a case-by-case basis.
Smaller funds are back from the brink and reflect allocators’ ability to take both investment and business risk to capitalize on the historical gains of younger and smaller funds. This shift will change an industry that has spent a few years slavishly focused on “the billion plus plus” – both from the investor and even the service provider points of view. Pools of smaller funds will exert influence on all facets of the industry as their own strength in numbers grows with increased allocations. Meanwhile, funds of hedge funds and investment consultants continue their tug of war over which type of firm will dominante the common ground they occupy in terms of hedge fund portfolio construction.
Emerging markets and global macroeconomic themes have always played a large role with our West Coast programs, and this year will be no exception. With developing markets and macro strategies leading investors’ wish lists, the most sophisticated and illustrious players will share challenges and opportunities and share the stage with the growing number of managers domiciled in the emerging markets and seeking investors in the developed markets.
Institutional Investor’s Alpha Hedge 17th Annual Institutional Investment Conference on September 25-27, 2011 in San Francisco will address the industry’s evolution from the investor perspective. This year's program will give perspective to and insight on a kinetic, maturing industry that continues to learn from past mistakes and confront the future with entrepreneurial and creative tail winds.