Who Will Make the Hedge Fund Industry Great Again?

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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