I pulled out a couple excerpts below from an obvious but informative piece that recently came across the transom. the email from Hedgeworld hit my inbox as I was hanging up with a Geneva based investor member. A fund of fund that creates portfolios for private banks he felt like he was doing all the right things – performing better than the market, returning capital, not locking up – but that the behavior of his managers was abhorrent. The two sources approach the same issue from different directions.
I asked him what sort of strategies and managers he was looking at to which he responded, “I have spent the last six months digging through the crap – lock-ups, side pockets, not knowing what’s in them, what’s not, NAV suspensions….you give a manager a million dollars, he give you $500k and an IOU for some unknown side pocketed assets. It’s unbelievable.”
The investor, that will remain nameless, observed that the worst offenders were big name US-based managers an that he is becoming “ALLERGIC” to US-based managers. He indicated that this was a view shared by a number of colleagues in Switzerland. He contrasted this with the actions of his European based managers who by and large have voluntarily reduced fees, offered transparency on side-pocketed investments and been more professional in their dealings.
Managers that lost capital and behaved poorly and that try to go and reinvent themselves in a new fund should be “tarred and feathered.”
Whereas he would desperately like to go back to his day job of looking for talented managers, he is stuck in the muck. Now imagine this situation playing out across the industry.
Is he painting with a broad brush…? probably. Does it matter…? not at all.
Those managers that are launching now, that had good performance in 2008, and even those that had crappy performance but returned capital…in other words, those that did what they were supposed to do, will suffer because of the actions of a few managers.
As the FOF managers articulate below, it is important to recognize how utterly pissed off people are and show some humility as part of the marketing cycle.
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March 17, 2009
“You want managers with the sensitivity and humility to approach money management with focus and discipline, and the understanding of what can go wrong,” Mr. Gundle told Reuters. “Investing is not about the testosterone-fuelled egos and bravado that we’ve seen permeate the hedge fund world over the last few years.”
Even so, by the time the next round of redemptions kicks in fund of hedge fund assets are likely to be half the $1.1 trillion reported by InvestHedge in February last year. Winners are likely to be those funds who have succeeded in avoiding single fund blow-ups, protecting investor assets and not aggravating their investors by changing redemption rules.
“Staying afloat for both single funds and funds of funds in this wave of deleveraging will be key. Certainly the ‘last man standing’ factor will come into play,” says Signina’s Mr. Paterson.
“Those not forced to sell holdings during the bloodbath will benefit and small firms with spotless reputations and a true emphasis on process may become the place for investors to be. They will want independent proof that processes are carried through, not just described in Power-Point presentations.”