Hedge funds to be attractive investments in new year?
By: Bart Mallon
Over the past couple of years hedge funds have seemingly taken a back seat to private equity, which has seen a significant amount of attention and inflows from institutional investors. However, it is beginning to feel as though hedge funds are poised for a banner year – in the past two weeks we’ve received more investor due diligence inquires (confirmation of our law firm’s relationship with a manager) than we’ve had over the past six months. Perhaps even more interesting is that investor demand is coming from all sources (fund of funds, institutional allocators, due diligence specialist firms and individual investors) and has been for potentially large subscription amounts.
Although our firm saw some managers receive major allocations from large pension funds and other investors in 2016, a high percentage of managers were seeing mild to poor interest in their products last year and it is no secret that fund launches were down significantly as well, continuing the trend of fewer fund launches over the last few years. While to some extent investor appetite is driven by individual managers (right performance, right strategy, right time), it seems to us that we are seeing diligence inquiries that are not solely focused on the hot investment strategy du jour. The inquiries also fall along various parts of the asset spectrum and can’t be solely classified as pertaining only to funds over say $250M AUM.
I did not expect this surge in inquiries, but I was not surprised it – in late November to early December (after the post-election market surge), we were hearing anecdotal evidence from some of our asset-raising friends that capital was ready to flow and that investors were inquiring about hedge fund products. It seems the bullishness of late November and December has continued into this new year. If this continues, we may see more launches in Q2 and Q3 of this year as portfolio managers decide to leave firms after bonus season, whether or not they have investors already lined up. In any event, we hope we see both more launches in 2017 and more investment in those launches.
Here’s to the new year and my best wishes to all of you – managers, investors, allocators, compliance firms, service providers – for a fantastic 2017.
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Cole-Frieman & Mallon LLP is a boutique hedge fund law firm and provides comprehensive formation and regulatory support for hedge fund managers. Bart Mallon, Esq. can be reached directly at 415-868-5345.