Attended Goldman’s hedge fund conference today. Some thoughts from the front lines...
The conference featured a few dozen fundamental hedge fund managers presenting to allocators.
Long-short equity = the single most scrutinized sub sector of active management.
Long-short equity = the single most scrutinized sub sector of active management.
I’ve been away from the day to day front lines for a little while and don’t have a major axe in the fight. Here’s what I found.
Astounding the change over the last few years.
A large cohort of managers that used to have $1-$5B in AUM are still at it with $250MM-$1B, a chunk of it their own.
A large cohort of managers that used to have $1-$5B in AUM are still at it with $250MM-$1B, a chunk of it their own.
The managers I visited have performed at or better than investor expectations and way better than industry averages.
The same managers overseeing a fraction of their prior asset size are reporting a far more attractive opportunity set with less competition on shorts and less crowding in interesting names.
Allocators, who stereotypically and in aggregate chase performance, are not chasing the performance of select hedge funds. The baby has been tossed with the bathwater.
The managers are evolving with the full recognition of the changes in market structure with quants and passive management.
The biggest of these evolution are emphasizing duration (longer horizons long and short), independence (less attention to the crowd), and risk management (to focus on uncorrelated return generation).
In my old days, I would have leapt at finding just one manager that now was behind every other door - long track record, seasoned team, consistent process, savvy, insightful, and not encumbered by too much capital.
These days it’s still really hard to balance what looks like very attractive micro (bottom up manager opportunities and underlying securities) with very challenging macro (alpha harder to come by, fees high vs recent returns, scrutiny massive, and no daylight in sight)
On balance, for the first time in a few years, I liked what I saw. If you have a portfolio of hedge funds, dig deeper and stay the course. If you don’t and can be contrarian (really contrarian), it’s a great time to start to look.
And before FinTwit and @ritholtz goes nuts on me, I’ve purposefully left out that this only matters if it fits on your portfolio and you need it. Some don’t, others do.
So I’ll end by saying that what I saw “on the ground” was way different, potentially much better, and definitely far more thought provoking than the consensus negative you read about in the papers.
