Hedge Fund Trends

Since we started our hedge fund consulting and media firm we have published thousands of articles and written and received thousands of emails with hedge funds and hedge fund professionals.  This experience has given us a lot of perspective on trends in the hedge fund industry.  In the following video, I describe the top four hedge fund trends in the industry today.

Video Transcript/SummaryThe strategies and tips provided within this video module include:

  1. Due to fraud in the news and some poor performance recently, the importance of transparency and governance has never been higher.
  2. Multi-prime brokerage.  Many hedge funds now often work with multiple prime brokers.  
  3. The use of investor databases, third party marketing and external capital raising services is on the rise.
  4. Investors want an institutional-quality hedge fund firm even among smaller funds.  

Transcript for Hedge Fund Trends

Hello, this is Richard Wilson and welcome to this video. We’re going to be talking today on the top 4 industry trends. So as we started our hedge fund consulting and media firm two years ago, we’ve sent and received over 800,000 e-mails, worked with over 1,000 hedge fund managers, and one thing that has given us is a lot of perspective on trends in the industry. We write daily on hedgeblogger.com and try to pick through news items and different trends we’re seeing in the industry and interviews we’ve done and share them with the industry. And we just want to share what we see as the top 4 trends right now.

If you’re a hedge consultant, service provider, a hedge manager or looking to work in the industry this could be information which can make your business more profitable or advance your career much more quickly by positioning yourself as one of the people whose on top of these trends or who understands it and has taken advantage of what’s about to happen or what is happening. So now let’s get started here.

The first trend is that due to fraud in the news related to hedge funds, some poor performance and some unclear hedge fund policies, not gaining clauses, et cetera. The importance of transparency and governance has never been higher. Those firms should be very proactive in being transparent and having great governance will have an advantage if you’re looking to interview the hedge fund. You can become somewhat of an expert on transparency, 50 ways of hedge fund can become more transparent or 20 things that should be in place for you to have a very strong governance. It’s a huge advantage.

If you’re a hedge fund manager and you’re very proactive on being transparent, doing monthly reporting or weekly reporting on various aspects related to risk or your operations, or you’re very advanced and have best practices in place for governance, that’s a huge advantage because most professionals, most hedge fund managers don’t mention these things when they market their hedge funds. Those that do they’re not always doing that well and if you can consistently be proactively ahead of the curve in these two areas, it will be a huge return on your investment of time and money.

And so I see this as a growing trend and a place where managers with less than a billion under management can put these things in place without having to spend $20M in infrastructure or on certain software and technology. These things can be put in place relatively in low amounts of capital. So those are two very important trends.

Another important trend right now is multi-prime brokerage. I don’t know of many hedge funds with over $100M that do not work with three or more prime brokers. And now what hedge funds are doing is once they get past $5M in assets they’re putting $1M to $2M or $3M with a second prime brokerage firm and after they get past $30M most that I’ve been speaking to are looking to place some assets with a third prime broker. There definitely is a large push by prime brokers to retain more assets and more hedge fund managers so hedge fund managers or sometimes ordinary or two change prime brokers, but there definitely is a trend of a multi-prime brokerage model. Technology companies I speak to are saying a lot of the popularity within their multi-prime technology platforms and the prime brokers I’m speaking to, it meant that they’re often working alongside competitors when serving their clients.

The third trend that we’re seeing here is the use of outside capital raising resources. Most hedge funds have trouble raising the amount of capital they would like to raise; almost everybody would like to be managing more capital. So the use of investor databases, third-party marketing and external capital raising consultants is on the rise. If the hedge fund industry is based on competitive knowledge and we are knowledge workers and time is money because the faster we work, the more capital we can to raise, the more risk we can manage, the more solid investment decisions we can make then it just comes natural that if you can hire an expert in marketing to help you move up that learning curve faster is going to save you money and add value to your firm long-term, instead of spending 300 hours yourself completing your own database of investors, you go to an investor database company and you buy a few investor databases, if that’s, say 200 hours then you might have saved yourself $20,000 or $15,000.

And this is one area that I think will only rise because not only is the hedge industry becoming more competitive but other industries such as commercial real estate, cash management, traditional fund management, they’re all becoming more competitive and what that means is that one investors like a wealth management firm, let’s say Gen Spring Wealth Management, a very large wealth management firm, they’re getting hit from all sides more often. So it’s really exponentially growing the number of inputs they have to them, which means you need to get to your investors faster in multiple modalities, multiple types of marketing materials and you’d be sending them things in the mail, over the phone, over e-mail and you’d be reaching deeper into the market. Maybe going after some investors which aren’t brand name investors which are being sought after by 10,000 different investment companies a year for capital.

So because of all of those factors these capital raising tools are becoming much more important. If you’d like to learn more about third-party marketing we have a free blog with over 200 resources at thirdpartymarketing.com and we have some databases at investordatabases.com.

The fourth trend which is really growing and is more all encompassing and probably more important than any of these others is that investors want an institutional quality firm. They want to have the operations or risk management, the research, the pedigree of a billion-dollar plus firm in a much smaller structure. So to meet that need what’s happening is hedge fund managers are hiring independent administration firms, hiring capital raising experts, they’re hiring technology firms to put into place, best practice, infrastructure, reporting and transparency. This relates to the first trend on transparency and governance but it’s much wider.

Being an institutional quality means having the right professionals on the team with the right experience and talent, having the right type of service partners which appear to be institutional quality and our institutional quality. And it’s really important that a fund manager nowadays promotes them self and has all the things in place that show tangible evidence of being an institutional quality firm on a proactive basis because everybody would like to have these things in place, but hardly anyone does. And so if you have these in place even before the investor asks for it or when the investor ask for something such as a compliance report, you have it and could send it within a half hour, that’s an institutional quality response and they can feel that and it will be obvious, whereas if you don’t have these things in place or can’t produce them that will also be obvious.

But it’s just a growing trend that the decision on whether an investor invests or not is more and more being based on this institutional quality factor than it is on track record or a team alone or a transparency in governance. Lots of it is really about the institutional quality of the firm. So I hope these 4 trends help you understand things that are developing in the industry, ways you can position your service provider firms, ways you could position your hedge fund or ways you could position yourself and your knowledge in the hedge fund industry.

So thank you for your time in joining us here today.

The hedge fund industry is constantly changing.  I hope that this video has given you a good update of the top four hedge fund trends. 

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About Richard Wilson