The hedge fund industry is alive and well
The gathering of senior executives at the recent HFM Week UK Operational Leaders Dinner in London offered an ideal opportunity to take the pulse of the hedge fund industry.
Forget those rumblings of doom and gloom. If these operations honchos and their firms are representative of the wider sector, then the outlook certainly appears bright.
News reports over the last year or two have been full of the industry’s woes.
Widespread lackluster performance. The traditional “2&20” model under fire, with firms—even some industry titans—being forced to cut fees. High profile and influential investors around the world reducing or divesting their hedge fund allocations. An increasingly burdensome regulatory environment. Funds closing. Firms shuttering. Startups struggling to raise money.
After years of growth and widening mainstream acceptance, the suggestion is that hedge funds have lost some of their shine.
This sentiment was encapsulated in the Warren Buffett broadside in Berkshire Hathaway’s latest annual report, where he lambasted active managers for sub-par results, while reaping “outsized profits” at the expense of their clients.
A positive future
Yet an industry with its back to the wall is not what we witnessed at the dinner.
The most common comment from attendees was that they’re still seeing a lot of investment flows from pension funds and other institutional investors.
Achieving consistent outperformance is challenging, of course. Yet these are smart players. They are watching market developments closely, and investing where they see opportunities and the potential to add value. “[President] Trump is making me a lot of money at the moment,” said one.
Some funds and firms may be struggling. Others are closing. But this is all part of the natural cycle. New funds are being launched too, with more in the offing.
Yes, regulation is onerous in places, but firms say they are adapting to deal with it.
And Brexit? So far it’s a non-issue. If they need to open an office in an EU-member state they will. However, at the moment there is no sense of alarm. Rather, it looks like London will still be the center of the hedge fund world in the EMEA region for the foreseeable future.
This is an industry renowned for its acumen, resourcefulness and resilience. And there was plenty of those strengths on display.
So forget the end-of-the-world doomsayers. From what we’re seeing it looks very much like business as usual.
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