Tags: downtrodden hedge funds, sad trombones
Weep for the sub-$1 billion hedge funds: It seems investors would rather risk pedestrian returns than the humiliation of putting their money with someone like this. Plus it’s just so much easier.
As much as $26.3bn in net flows made its way into the 480 or so single-manager hedge funds with $1bn or more in this year’s first half, according to data from Hedge Fund Research, a Chicago-based tracking firm. Attempts at fundraising over the same period yielded dismal results for the more than 7,500 funds with less than $1bn; they managed to collect just $3.4bn in assets on a net basis – a small fraction of what their bigger peers received.
Adam Guren, chief investment officer at Hunting Hill Global Capital, a New York hedge fund with less than $100m under management, blames the rigid due diligence required when an investor takes a stake in a less-established investment. “It is clear the money flow is still going to the largest funds in the world,” he says. “It is a safe bet for a lot of these asset allocators. It is easy for them to walk through the due diligence process….”
The returns small hedge funds generate, however, showcase the irony of the situation. Over 10 years until the close of this year’s first quarter, funds worth less than $50m provided an 8.5 per cent annualised return; funds with assets hovering between $50m and $250m threw up an 8.3 per cent return; while funds with more than $1bn fared the worst, offering a 7.92 per cent return.
Unfair Darwinian churn drowns small hedge funds [FT]