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Although a small number of investors view hedge funds as too great a risk of pension fund investment, the majority understands that hedge funds are the only option for reducing risk while at the same time providing uncorrelated returns.

For example, Raphael Arndt, the Chief Investment Officer (CIO) of an Australian sovereign wealth fund has committed more than 15 percent of its $166 billion (Australian dollars) to hedge fund investment.

Mr. Arndt said in his speech last week to the Insurance Investment Forum, “Hedge funds have an important portfolio role to play in generating returns that are uncorrelated to equity markets.” The CIO wisely noted that hedge funds not only mitigate risk but also provide returns in equity market environments that are suffering prolonged periods of losses.

There Is No Conflict

The fund’s mandate is to achieve a 4 percent return after inflation. Arndt sees no conflict between the mandate and hedge fund investment. Rather, he cites the poor public image the industry has earned, the lack of transparency, excessive fees, and, the perceptions of poor ethics and a lack of customer focus as being the greatest obstacles to hedge fund investment.

This Makes It Clear

Although most would agree that these are dated hedge fund industry stereotypes, hedge fund managers would do well to take heed. Those close to the industry are well aware that today’s hedge fund industry is a newly evolved generation of hedge funds—hedge funds that practice institutional-quality investment processes.

However, those outside the industry are not so keenly aware of the strides hedge funds have made since the “great financial crisis.” Hedge fund managers must continue improving the industry’s public image, remain on a path toward transparency, persist in reducing fees and/or establishing performance based limits, and maintain a resolute focus on the needs of its investors.

It is clear that hedge funds can, and must, do these things.

What Today’s Institutional Investors Say

Most institutional investors agree that hedge fund investment is integral to portfolio diversification and an important element in protecting against a significant equity market drawdown. While investors are cognizant of the large fees hedge funds charge, they recognize the worth of skilled managers that command such fees. For these reasons, hedge funds are getting a second look.

What about Hedge Fund Jobs?

All this adds up to increased employment opportunities in the hedge fund industry. Logically, the more “new blood” hedge funds bring on board, the further they are distanced from the stereotypes of the past.

Investors have demonstrated a willingness to re-examine what hedge funds can offer. What they see is an evolved and improved industry that features a new breed of managers that diverge significantly from their predecessors.

As the old stereotypes fade, transparency improves, fees moderate and customer focus becomes the norm, hedge funds will see resurgence in popularity and jobs will inevitably follow.

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Hedge funds were dealt a harsh hand in the first quarter of 2018, down 0.13 percent. However, to put things in perspective, the Dow was down 2.49 percent in its first quarter, ending at 24,719 the closing number for 2017, and falling more than 600 points to 24,103 on March 29, 2018, the last trading day of 2018’s first quarter.

The S&P 500, the unofficial (and unwarranted) benchmark for hedge fund performance, did not fare much better, down 1.22 percent in the same period.

Although in the red, the hedge fund industry performed more than 19 times better than the Dow and more than 9 times better than the S&P 500. Evaluated from this perspective, hedge fund performance through the first quarter is not too shabby.

Nonetheless

While the foregoing is a bright lens through which one can view industry results, it must also be acknowledged that this quarter’s result represents the worst showing since the first quarter of 2016. On the plus side of the equation, hedge fund industry assets grew by just over $31 billion, signaling that investors remain confident in the industry’s long-term ability to produce returns.

Flows & Assets under Management

Net Flows for the first quarter were solidly in positive territory for the fourth consecutive quarter, which resulted in total global assets under management reaching $3.215 trillion, according to HFR. While this is excellent news for the industry, it doesn’t put a nickel in the pockets of investors.

Investor Expectations 

The strong performance of the hedge fund industry in 2017 raised investor expectations for 2018 to around 8.5 percent. January 2018’s strong performance only strengthened their optimism. However, first quarter results mirror the clichéd “one step forward, two steps back” mantra. The industry, as a whole, is 13 basis points into red territory. Achieving an 8.5 percent gain in the remaining three quarters will be no small feat.

The headwinds are significant. Geopolitical concerns, particularly Syria, North Korea and Iran, spell uncertainty in capital letters, the potential of a “blue wave” stalling (or reversing) the Trump administration’s economic agenda, and the question of how Jay Powell may approach inflationary pressures round out the top three concerns.

Hedge funds must average gains of around 0.96 percent in each of the remaining months to meet these expectations. Of course, this can be accomplished, as January 2018’s results confirm.

What about Hedge Fund Jobs?

As everyone understands, hedge funds are not about to throw in the towel because of one lackluster quarter. Rather, one should anticipate a full-on effort from the industry, designed to reverse their first quarter misfortunes. The industry will almost certainly step-up their pursuit of talented professionals, double down on innovative strategies and find ways to reduce operational costs.

Those interested in a career in the hedge fund industry may find no better moment than this one to realize a career as a hedge fund professional, particularly those with unique skill sets, fresh ideas, and strong work ethics. These are the attributes needed to succeed. These and a bit of good luck!

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Why You Need to Make Quantamental and Ownit Part of Your Vocabulary

April 16, 2018

Fundamental hedge fund managers are, in growing numbers, being won-over to the concepts of artificial intelligence, machine learning and big data. How much of this is genuine interest as opposed to the fear of missing out is unclear. What Is Clear Data science, artificial intelligence, and machine learning have attracted significant attention in recent years, […]

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What Can Be Learned from 1st Quarter Hedge Fund Results?

April 3, 2018

Practically speaking, 2018’s first quarter hedge fund results are in the rear view mirror, and two trends are becoming clear. First of all, HFRX Global Hedge Fund Index reported modest gains of 19 basis points through mid-March, which does not comprehend the latter half of March’s sharp drops in the Dow Jones Industrial Average. Moreover, […]

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Does an MBA Provide a Fast Track to a Hedge Fund Job?

March 19, 2018

Let’s begin by saying that no one should be discouraged from pursuing an MBA. However, it is important that one is clear on the motive for doing so. If the motive is to fast track employment with a hedge fund, one might be in for disappointment. Some Harsh Facts According to the 2018 Hedge Fund […]

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Disappointing February Returns Do Not Stall Job Opportunities

March 5, 2018

February appears to mark the end of 14 consecutive months of positive gains for the hedge fund industry, with HFRX weighted average returns posting a decline (- 0.35 percent) as the surge in market volatility worked its worst in hedge funds. While the HFRX is much narrower in its scope than the HFRI, which comprises […]

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What Do You Think About the S&P 500 as a Benchmark Now?

February 19, 2018

The January 2018 results for aggregate hedge fund performance have been published. According to HFR, the industry showed a 2.8 percent gain. In contrast, the S&P 500 gained 5.7 percent in January before plummeting in the wake of February’s correction. Year-to-date gains for the S&P 500 as of February 16 stood at 2.19 percent, 61 […]

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