Sensing a favorable environment for hedge funds among US institutional investors, a number of UK-based hedge funds are setting up operations in the US to grab a slice of the growing institutional money moving into hedge funds. Well known UK funds such as Winton Capital, Odey Asset Management and Cheyne Capital are among a large number of London-based hedge fund groups that are either starting afresh or boosting existing operations in the US to get exposure to big institutional investors such as pension funds that are increasing allocation through a shift from fixed income to hedge funds.
HF Regulation in Europe Becoming More Stringent
Raising capital in Europe has become difficult following a directive from the regulators to subject alternate investment managers, such as hedge funds, to a host of new requirements including new reporting and disclosure requirements. The directive more commonly known as the Alternative Investment Fund Managers Directive aims to subject hedge funds and private equity funds to the same rules as mutual funds in the hope that such a rigid approach to hedge fund regulation will curb excessive risk taking and prevent the severity of an unforeseen financial crisis.
Commenting on the regulation, Troy Gayeski , senior portfolio manager at SkyBridge, a New York-based fund of hedge funds says, “Europe is going out of its way to make it difficult for investors to invest in hedge funds. The US is still the largest market with the deepest pools of capital and [UK hedge funds] would be crazy to not at least try to expand”.
UK Hedge Funds Flock To US
As the pool of assets available in Europe stagnates, UK hedge funds are flocking in large numbers to the US to take advantage of the growing number of institutional investors warming up to hedge funds.
Winton Capital, which has $25 billion in assets, last month set up its first US office in New York with six employees. It plans to add to its sales team this year. Another UK hedge fund Odey Asset Management, with $10 billion in assets under management, set up its first US office in New York late last year while a third fund, Cheyne Capital, with $6.5 billion in assets, opened a New York sales office early this year and plans additional hiring. Another London-based fund Cube Capital made its first foray into the US last month when it named Stephen Petretto as the US Director of Marketing. The $1 billion fund plans to set up an office in New York or Boston in 2015.
Some European funds that already have a foothold in the US are planning to boost their teams to seize the positive industry momentum. Such funds include the $14B hedge fund group CQS and the $12B fund Polygon – both of which have offices in New York, but plan to expand their US teams.
US Institutional Investors Also Ramp Up HF Exposure
Unlike its European counterparts, US hedge funds are witnessing strong interest from institutional investors such as insurance companies and pension funds. A recent survey by Deutsche Bank found that 57 percent of institutional investors plan to increase allocations to hedge funds this year. Institutional investors now contribute to two thirds of the overall US hedge fund assets compared to only one third of the assets prior to the 2008 financial crisis. Many large institutional firms which once stayed clear of hedge funds are now including hedge fund investments as part of their portfolio.
Relevance To Job Market
The European rush to tap US institutional money that is moving to hedge funds highlights the positive perception of hedge funds by US institutional investors. It is somewhat ironic that hedge funds are witnessing a favorable fund raising environment at a time when the industry’s returns are consistently and notably falling short of major US financial averages. Hedge funds are viewed as a good investment option especially at a time of uncertainty. With the stock markets stubbornly holding on to historic high levels with questionable improvement in the economy, many large investors are comfortable hedging their position with hedge funds even if the returns are underwhelming. This general positive undertone will likely have a positive impact on the hedge fund job market.