Investors Seek Focused Fund Managers
Fund managers overseeing one pool of capital. That is the current preference of one of the largest endowments in United States. This investor has set its sights on managers that are putting their best ideas into one product and generating alpha for their clients. The endowment believes that fund managers with multiple products have more difficulty successfully running any one fund than firms with a single fund.
This investor’s preference is especially interesting given the current consolidation in the hedge fund industry. Larger hedge fund managers have been acquiring smaller ones and are now managing multiple funds and multiple sources of revenue. It is also noteworthy because, traditionally, not only have investors had a preference for larger, multi-product firms, but diversification was largely seen as the way for hedge funds to grow.
The idea of investing only in firms with a single fund may be a shift back to basics. Many hedge funds became successful by focusing on growing a single fund. It was the reason why they were able to charge higher success fees. Nevertheless, if other institutions follow this endowment’s example and move away from “asset gatherers,” single-manager funds will have the opportunity to attract new investors that would have otherwise passed them by because they did not have enough firm-wide assets under management to be considered.