The New Face of Hedge Funds: Where are Investors Deploying Capital?

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Darrell Cobb
6 years ago
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1 3 rd Annual P&I/AIMSE Hedge Fund Conference, 2009 The New Face of Hedge Funds: Where are Investors Deploying Capital? RACHEL S. L. MINARD, PRESIDENT & PARTNER, COGO WOLF ASSET MANAGEMENT (MODERATOR) SPENCER POTTS, MANAGING DIRECTOR, SILVER CREEK CAPITAL CLAYTON CHEEK, EXECUTIVE VICE PRESIDENT, MAN INVESTMENTS JOHN BAILEY, CHIEF EXECUTIVE OFFICER, SPRUCE PRIVATE INVESTORS CHRISTOPHER TOBE, TRUSTEE KENTUCKY RETIREMENT SYSTEMS

2 : A Changed Landscape Hedge funds: A Four Letter Word Headline, career, country-club risk Transparency and due diligence: show me, don t tell me Egregious fees for underperformance: be willing to negotiate Illiquidity: locks, gates, side letters, freezing of assets No hedge in hedge funds Correlated to everything Liability hedge: no Alpha generator: no Non-correlated diversifier: no To regulate or not to regulate HFTA (Hedge Fund Transparency Act) FASB 157 RIA and FSA A $1.7 trillion dollar business: so what s next?

3 Worst economic market since 1873

4 Those That Didn t Invest in Hedge Funds Pushing gforward aggressively Want to go the FoHF route Strong interest in hybrid funds Want to move now Consulting firms are getting built-up demand Those that will thrive: Boutique firms with a truly competitive edge and good performance Larger firms with a plethora to offer and stable infrastructure Those that will meet hardship: Mid-sized firms that are unable to adapt or have mediocre returns Small firms with directional bets not in favor Firms caught in M&A Customization by overseas institutions Separate Accounts White Label Products Sub-Advisory Relationships Learning from others mistakes

5 2009: The Year of Adaptability

6 Those That Did Invest in Hedge Funds Back to Square One Taking Inventory A full asset allocation and liability study: a first step Correlation and attribution exercises stress weak spots New Consultant/Intermediary Dialogues Review objectives, standards, buy lists Opportunity for smaller boutique firms to differentiate themselves New approach to RFPs/RFIs perception is not reality A Bottom-Line Business Either you have it or you don t Need to clearly articulate what problem your fund is meant to solve An industry willing to wait: nothing hasty, no velvet ropes, no capacity games The Silver Lining Back to the basics: facts matter New value propositions: judgment and experience trump AUM and a deep bench Out of the box thinking is rewarded Won t be deploying assets for another 6-9 months at minimum

7 Buyers Questions & Interests How do we get better diversification using hedge funds? Still trying to find liquidity but can t rebalance: liquidity premiums Just putting money to work isn t enough: need to make up for last year Moving assets to cash as a stop-gap isn t the answer: HF fees for passive indexing? Strategies that have promise: GTAA Global Macro Infrastructure Catastrophe Insurance Managed Futures ETFs Hybrids Dead Portable Alpha 130/30, 120/20 Leverage of any kind Momentum investing (aka: Let s buy what worked last year. We can t lose!)

8 And Now For The Good News Tremendous opportunity overseas Korea and Japan: customized funds Middle East: SWF Continental Europe: need an immediate solution Scandinavia: looking to partner Canada: revisiting FoHFs after two year hiatus Cycling Analogy: Pole Position Moves The only time the lead can change is on the toughest spot on the course: the hills Great talent available Double digit unemployment leads to great talent at cheaper prices Demystifying the Myth of Hedge Funds A new paradigm requires a new presentation, a new audience, a new value proposition Client Service: the past 9 months have upped the bar, unlikely to revert back Know what you re good at and do that one thing well -- Carnegie

9 The panel would like to thank Pensions & Investments and AIMSE for the opportunity to present to you today. RACHEL S. L. MINARD, PRESIDENT & PARTNER, COGO WOLF ASSET MANAGEMENT (MODERATOR) SPENCER POTTS, MANAGING DIRECTOR, SILVER CREEK CAPITAL CLAYTON CHEEK, EXECUTIVE VICE PRESIDENT, MAN INVESTMENTS JOHN BAILEY, CHIEF EXECUTIVE OFFICER, SPRUCE PRIVATE INVESTORS CHRISTOPHER TOBE, TRUSTEE KENTUCKY RETIREMENT SYSTEMS

Creating Differentiated Value in a Crowded Market Ed Bernard, Vice Chairman, T. Rowe Price Group

Creating Differentiated Value in a Crowded Market Ed Bernard, Vice Chairman, T. Rowe Price Group T. Rowe Price, Invest With Confidence and the Bighorn Sheep logo is a registered trademark of T. Rowe Price