The Road to Recovery
Those who were marketing hedge funds during the first two quarters of 2009 often received a disappointing response: “We are not looking at anything right now and do not plan to do so for the remainder of the year.” This phrase trickled throughout most of the industry, which caused the majority of fund managers to stop communicating with investors. There was no doubt in anyone’s mind that business was slow and that creating new relationships for future investments was not on anyone’s priority list.
At the beginning of the year when BHA first heard this sentiment, it made note of these investor firms and decided to track their interests. Part of our research efforts includes calling investors every quarter to determine their current investments and future plans. Now that the final quarter is here, we have taken a look at these investors’ sentiment over the past 10 months.
The second and third quarters saw some of the strongest returns in hedge fund history. What is interesting to note is how fast the recovery occurred when compared with previous recoveries. According to Credit Suisse/Tremont index’s first half Hedge Fund update report, “Historically, it has taken hedge funds 13 months to recover from these market disruptions.”1
BHA research indicates that because of a fast-paced market recovery, investors that were not considering investing in hedge funds before 2010 have changed their minds and are showing signs of making allocations. One example comes from a wealth advisor in London. The firm recently held an investment committee meeting with its board. At the beginning of 2009 the firm stopped researching hedge fund managers because of the market situation. After the investment team laid out a few possible strategies, the board decided that now was a good time to get back into hedge funds.
BHA is finding many investor firms are getting back into alternatives as they plan their asset allocation agendas. Some are staying with a certain asset class while others are exploring new vehicles to compliment their investment agendas. These are very encouraging signs that investors have put fear aside and the industry has returned to somewhat of a normal state. No one could have predicted that it would have taken such a short time for the industry to get back on its feet.
1 Pensions & Investments, “Hedge fund rebound continues in Q2,” August 24, 2009