Investors Shying From First-Time Hedge Fund Managers

Terry said most investor groups were less willing than a year ago to consider emerging managers, and 71% were looking for a longer track record from managers before considering them for investment.

However, 75% of investors tracked by Preqin would consider smaller managers with less than $500 million under management, he said. More investors may have to do this as larger funds close to new investment upon reaching capacity.

The burden is on first-time funds to stand out in a crowded market, Terry said. “Emerging managers need to ensure that they have a strong team, robust infrastructure and a coherent strategy, as well as strong early performance in order to attract investment from the ever-demanding institutional community.”

The Preqin statement reported these other key facts:

• 22% of emerging manager funds launched since 2007 recorded a loss in their first year of trading, compared with 26% of funds launched by established managers.
• However, emerging managers that suffered a loss in the first year tended to experience larger declines.
• 73% of these investors interested in emerging managers are fund-of-hedge-funds managers, followed by asset managers (46%) and family offices (43%).
• 274 new hedge fund managers set up business in 2012, a record, and 2013 could eclipse this with 231 recorded manager launches as of Nov. 15.
• 70% of hedge fund managers that launched in 2013 were based in North America, and 48% of all managers launching used a core long/short strategy.
• Despite an increase in hedge fund manager launches in 2013, only 44% of new fund management groups have launched their first vehicle—604 recorded as of Nov. 15.