| Vol 17 | September 10, 2009 | Issue 35 |
Active Investors on the BHA Platform
| Top Hedge Fund Investors | # of mandates | | Funds of Funds | 1,551 | | Wealth Advisors | 0,734 | | Family Offices | 0,568 |
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| Top Fund of Funds Investors | # of mandates | | Wealth Advisors | 1,036 | | Government Pensions | 0,733 | | Family Offices | 0,641 |
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| Top Private Equity Fund Investors | # of mandates | | Funds of Funds | 396 | | Wealth Advisors | 382 | | Government Pensions | 351 |
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| Top Real Estate Fund Investors | # of mandates | | Wealth Advisors | 163 | | Government Pensions | 145 | | Consultants | 097 |
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Helpful Links
Investors Demanding Stability, Sophistication, and Transparency from Fund Managers
By Blakemore Foster
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As hedge funds recover from the economic crisis and fraud that plagued the industry in 2008, investors are moving back into alternative funds—and requiring more than just uncorrelated returns. Many are demanding funds have institutional quality infrastructures, independent auditors, and significant asset bases to weather highly volatile markets. Endowments, foundations, and pension plans, in particular, are demanding an increasingly sophisticated and professional hedge fund operational structure be in place before they are willing to risk investment.
At BHA, we have spoken with several institutional investors that have indicated one of the most important criteria for their investment committees to consider is the infrastructure that supports the fund. Institutional quality infrastructure can be defined in many ways. It can cover everything from a manager’s back office operations, fund structure, and organization to its independent oversight procedures and valuations.
Institutional investors are also seeking funds with large asset bases managed by experienced financial professionals that have defined positions and roles in the firm, strong pedigrees in the industry, and verifiable track records. Many investors perceive such funds as a more stable investment option and not as susceptible to collapse if negatively impacted by directional bets or redemptions. During the month of August, 57 percent of the hedge fund investors BHA interviewed were only interested in fund managers that had $100 million to $1 billion under management. And in a recent conversation, the head of hedge fund research at a North American consultant said that the firm was considering only funds with more than $1 billion in assets and a ten-year track record.
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Investors perceive that funds with large asset bases and long track records have the experience and institutional infrastructure to handle volatile market events. And given the times, investors are in a position to be more selective and demanding. Managers that incorporate this level of sophistication into the administration of their funds will help allay investor concern over instability and outflows. |
Equity Funds in Demand
By Ryan Cunningham
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During the past two months, a large spectrum of institutional and private investors has been seeking funds trading public equities. While long/short equity funds are always popular, it appears that many investors think now is a time to seriously begin evaluating long/short equity funds for potential allocation.
Many investor firms, large and small, have expressed an interest in making allocations to equity funds by the end of 2009. The market has shown signs of stablizing and investors have been making a select list of managers to keep on their radar. According to BHA data, nine out of ten consultants surveyed have specific mandates for long/short equity managers. One consultant, for example, has a specific mandate for sector specialist equity managers. The firm wants to hear from U.S., European, and Asian managers that have global equity exposure; it plans to allocate to several managers by the end of 2009. Morningstar recently reported that equity funds are among the top performers of all hedge fund strategies.1 Because of the strong results, investor firms have been actively researching, performing due diligence and allocating capital to long/short equity funds. Additionally, BHA finds that many firms are keeping an open mind as to the types of funds they should research. For example, while some firms are expressing interest in emerging market equity funds, others are stating their interest in developed regions. Therefore, the significant rise in interest is not directed at certain segments only; rather, all types of equity funds are seeing greater attention from the investor community. |
After much turmoil, equity markets seem to be recovering, which should translate to a healthier marketplace overall. And as we move closer to the end of 2009, it appears as though investors are beginning to show signs of deploying capital into the equity arena.
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One Size Does Not Fit All
By Theo Bakolas
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Many investors that BHA analysts speak with have set requirements for the amount of assets a potential fund should have under management. As reported in the article above, "Investors Demanding Stability, Sophistication, and Transparency from Fund Managers," during the month of August, 57 percent of active hedge fund investors indicated a preference for funds with $100 million to $1 billion in assets under management. While these investors represent a cross section of alternative fund investors, analysts have also found that many investors tailor their requirements based on specific searches or mandates they are pursuing at a given time.
Sometimes investors look for smaller funds that are nimble when they want managers that can move in and out of positions relatively easily. Other times, investors turn to larger funds when they want to make a sizeable allocation to a particular strategy but do not want hold a large position in the fund.
An example of an investor taking this case-by-case approach is a wealth advisor based in Switzerland. The firm had previously searched for smaller global macro managers with assets of less than $100 million. Recently, however, the firm searched for multi-strategy funds with assets in the $300 million to $500 million range. |
As BHA analysts speak with investors, it’s apparent that some have no preset requirements for assets under management and are changing their specifications with every mandate. This gives managers of all sizes an opportunity to get in front of investors.  |
Hot New Mandates
Brighton House Associates (BHA) is a research organization focused on the alternative investment community. BHA has a team of research analysts who compile information on the active investment searches of the global investor community through direct phone conversations with investors. On average, analysts profile 125 investors per week and gather information about specific mandates or investor searches. These investor mandates include the qualifications and characteristics they are searching for currently in an alternative investment fund.
Hot Hedge Fund Mandate
A small fund of funds with less than $100 million in assets under management is looking to allocate $25 million to underlying funds by the end of the year. It is looking for funds that use distressed credit and short-biased equity strategies with a global exposure. The fund is also interested in long/short equity funds predominately focused on Asian markets. Prospective managers should have $100 million in assets under management and preferably a two-year track record.
Hot Private Equity Fund Mandate
A large, Australian government pension plan is researching private equity fund managers. It is most interested in buyout, venture capital, and mezzanine strategies. The pension plan is looking for small-market funds that are focused on Europe, Asia, and the United States. It has no requirements for the amount of capital a fund must raise. It is however looking for established or spin-off managers that have successfully raised at least one fund in the past.
Hot Real Estate Fund Mandate
A wealth advisor located in the Midwestern United States is actively researching real estate fund managers for future allocations. It is interested in core-plus and value-add strategies focused on the commercial, industrial, residential, and retail real estate sectors. The firm is interested in hearing from only U.S.-focused funds at this time. Returns should be in excess of 15 percent. The firm has no requirements for the amount of assets under management, however, it is interested in hearing from only well-established managers that have raised funds in the past.
Hot Hedge Fund Mandate
A family office located in the Northeastern United States is searching for discretionary or systematic CTA managers. It is looking for funds that focus on metals or grains; it thinks there is a large opportunity in these sectors. The firm is looking for experienced managers that have at least $100 million in assets under management. It invests exclusively through managed accounts and typically allocates $2 million to new managers.
Hot Fund of Hedge Funds Mandate
A tax-exempt organization based in Dallas, Texas, with nearly $1.4 billion in assets dedicated to alternative investments is looking to hear from funds of hedge funds. It is specifically interested in managers that have more than 50 percent of their portfolios dedicated to long/short equity funds. While the organization is searching globally, a U.S.-based management team is highly preferred. The fund should have a track record of at least five years coupled with assets under management approaching $1 billion. The organization also wants to see funds that have a current investor based comprised mostly of institutional investors.
Investor Data
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Editors-in-Chief
Richard Rapacki
508-786-0480, ext. 215
Gabriel Berkowitz
508-786-0480, ext. 214
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President and COO
Dennis Ford
508-786-0480, ext. 201
Dennis Ford is President and COO of BHA. His
expertise is in database marketing, using the Web to create interactive dialog,
and using analysis and profiling to understand customer prospects. He is also
the author of a well received book on selling called The
Peddler's Prerogative.
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© 2009 Brighton House Associates, LLC. 4 Mount Royal Ave., Suite 140, Marlboro, MA 01752
The Investor Monitor is a general circulation weekly. No statement in this issue is intended as a recommendation to buy or sell securities or to provide advice. Reproduction is prohibited without the permission of the publisher. |
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