Trump’s theme, “Make America Great Again,” has drawn its fair share of criticism. On the one hand, the slogan is interpreted as a slight by those who believe America is already great. On the other hand, many voters believe that America’s greatness is diminished and needs restoration.

Parallels exist in the hedge fund industry. A cadre of institutional investors such as CalPERS, AIG, MetLife, NYCERS, have determined their financial futures are best served by investing in something other than hedge funds.  A larger number of investors have elected to stay the course, not because hedge funds, taken together, have done well, but because investors see no superior alternative.

Hedge fund investors and American voters are faced with two unpleasant choices—stand by the status quo (Clinton) or leap into the unknown (Trump).

Parallels Persist

As is the case in the polls for the presidential contest, the status quo is winning.

The Credit Suisse Mid-Year Survey of Hedge Fund Investor Sentiment reports 69 percent of pension funds and 75 percent of endowments and foundations had some level of redemption activity during the first half of 2016. However, these redemptions were highly selective, targeting funds that under-performed or strayed from their declared strategy.

While at first blush, this might be interpreted as a loss for the status quo (hedge funds), the Credit Suisse survey goes on to report that 82% of those firms participating in redemption activity plan to recycle that capital into other hedge funds. Only 9 percent expressed uncertainty with regard to their investment intentions.

More Good News for Hedge Funds

The Credit Suisse survey reports that only 24 percent of all U.S. investors indicate that they will not invest in hedge funds. Asian-Pacific investors are even more bullish, indicating that 14 percent will not invest in hedge funds.

Investors from Europe, the Middle East and Africa show the least enthusiasm for hedge fund investment, as 36 percent indicated no intent to invest in hedge funds.

Who Makes Hedge Funds Great Again?

If the survey is any indication, hedge fund managers that do not drift from their stated strategy and whose performance meets or exceeds the investors’ expectations will make the hedge fund industry great again.

While the need to perform needs no explanation, the need to stick to a strategy may require one. Investors have become increasingly sophisticated. They have a solid grasp on the theories, metrics and dynamics that propel an investment strategy. Moreover, armed with this knowledge, they have preferences for one strategy over another. Nothing dismays an investor more than to see his hedge fund manager abandon a strategy that his investor supported by a cash vote.

What About Hedge Fund Jobs?

The future for employment in the hedge fund industry remains bright. Opportunities will always exist for those best qualified.

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Having struggled with an indecisive and opaque Federal Open Market Committee, chaired by the enigmatic Janet Yellen since February 2014, hedge funds and the broader investment community must now consider the possibility that the Fed’s purchasing options may one day expand beyond U.S. Treasuries and agency securities.

The Interest Rate Debacle

Equity markets have plundered the phenomenon of interest rate uncertainty since the inception of Yellen’s tenure. This has been previously addressed here and, there is little value in re-hashing the point. Equities, arguably, have ridden these artificially low rates to the longest bull run since the June 1949 through August 1956 rally while concurrently decimating potential gains for hedge funds pursuing a long/short strategy. The market volatility fueled by rate uncertainty has been no friend to hedge funds.

Opening the Door a Crack

During Yellen’s September 28 testimony to Congress, Representative Mick Mulvaney, a Republican representing South Carolina’s Fifth District, quizzed the Chair on whether or not the Fed had ever considered buying equities?

This unusual question was apparently rooted in remarks the Chair had made during a speech in Jackson Hole, Wyoming in which she lamented the difficulties of providing adequate monetary policy. Yellen was no doubt referring to the brace of arrows currently in the FOMC quiver: 1) quantitative easing and 2) setting the Federal Funds interest rate.

Yellen goes on to say, “Accommodation may be somewhere in the future, down the line that this is the kind of thing that Congress might consider.” One may have thought the prospect of negative interest rates was frightening, but the prospect of the Fed purchasing equities might make one—well—quiver!

For those inclined to let this pass as nothing more than a polite response to Representative Mulvaney, it should be noted that the following day in a video Q&A, the gentle lady is quoted as saying, “the idea of expanding into areas like equities might be good thing to think about.”

One has to wonder if opening this door a crack is letting in a shaft of light or, merely a shaft that carries with it the potential to nationalize our markets.

Gaining Momentum

In the wake of Mulvaney’s question and Yellen’s cryptic response, Larry Summer was cited by Bloomberg as saying that among the proposals on the table, buying a “wider range of assets on a sustained and continuing basis deserves serious consideration.” After speaking at a Bank of Japan lecture, he told reporters that, “I’m not prepared to make a policy recommendation at this point.”

How Does this Affect Hedge Fund Jobs?

At this point, it doesn’t. Everyone is keenly aware that the hedge fund industry is struggling with redemption and recognizes it has been haunted by performance issues for more than two years. For the first time in recent memory, hedge fund closures are outpacing new starts. Clearly, this environment is no Eden for hedge fund job seekers.

As a result, the industry is experiencing a fair amount of churn in the ranks of its employees. The opportunities that fade, due to problems in the hedge fund universe, also offer unexpected opportunities for those who maintain a solid network and an ear to the ground.

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Clinton vs. Trump on the Subject of Carried Interest

September 19, 2016

If any common ground exists between Hillary Clinton and Donald Trump, it is on the subject of carried interest taxation. Both regard the favorable tax treatment received by private and hedge fund general partners on carried interest to be grossly unfair. The politicians and many mainstream media pseudo-journalists make an uncomplicated argument—carried interest is taxed […]

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Have Hedge Funds Arrived at a Crossroads?

September 5, 2016

When Paul Tudor Jones says adieu to roughly 60 employees, Pershing Square Capital Management shaves its staff by 10 percent and Citadel trims its headcount by more than a dozen souls, this is a fair question to ask. After all, these are some of the largest and, most successful, names in the industry. What’s Driving […]

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Hedge Funds Suffer 3 Consecutive Quarters of Net Outflows

August 8, 2016

If the subject were recession, defined by the media as two or more consecutive quarters of decline, then one would correctly view the past three quarters of declining hedge fund assets under management as akin to a recession in the hedge fund industry. However, economists can find no common ground for defining a recession. Obviously, […]

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Are Hedge Funds Truly Failing to Attract Graduating MBAs?

July 25, 2016

While it may be true that fewer MBA holders are entering the hedge fund industry, it is certainly true that recent headlines suggesting that these students “scorn” hedge funds or that fewer MBAs “want to work” for a hedge fund border on fiction. Here Are the Facts The articles referenced above are inspired by Training […]

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Why Do Hedge Funds Continue to Under Perform?

July 11, 2016

This is a top-of-mind question for institutional investors and the answers are as varied as the hedge fund industry. Obviously, the answers offered can’t all be accurate. Furthermore, answers will necessarily differ from one fund strategy to another. Morgan Stanley conducted a survey at a recent conference of long/short fundamental equity hedge funds. Morgan Stanley’s […]

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