The Absolute Return Symposium held on November 19-20 is one of the better events of the year – the speaking faculty is high caliber and the audience is comprised of a number of end investors.
Consensus from the investors including Gleacher, JPMorgan Alternative Investment and Joel Katzman was that 1. the larger hedge funds will get larger and the smaller funds – defined as less than $250 million will suffer and 2. Investors are not happy with the “behavior” of managers favoring their businesses over investor capital.
In this tough environment – “Everyone has 50% of the time that they had. Not going to meet with someone under $50 million, if a fund is ticking along at +1-2% above their average it is not going to matter”
Investor disgust was palpable, with many investors and raising issue with how hedge fund behavior of imposing gates and suspending redemptions to maintain a business rather than return money to investors and close the fund. The biggest change expected out of the next iteration of the industry’s evolution is the rebalancing of the asset/liability mismatch.
“Terms are not particularly enforceable as are levels of fees and transparency. To continue the flow of corporate pension assets – game has got to change. I expect that this will lead to more managed account relationships where the investor holds the assets. The model has to change – the current model is a bull market model – 60-90 day notice to pick up money will change. We expect longer lock-ups.”
“The asset liability mismatch was sickening. Expectation is that managers will give investors a much more balanced relationship. Front-end lock-ups are useful to make sure that investors are serious…and proponent of changing liquidity system so that investors can’t jump in line.”
Paul Touradji from Touradji Capital, a commodity hedge fund, issued a direct rebuke to the industry, “2/20 is a rich product. “Hedge Funds were created to speculate and trade, not invest for the long term. What is the trading skill? What is the niche market edge? Maybe 80-90% will go away. If a fund is unable to preserve capital on the downside, they should be out of business. “ He continued, “Managers are thinking about their business before their partners. The social contract between hedge funds and investors has been broken.”