We've all been there. 

Moving, shaking, getting stuff done at an industry event. 

Hitting up investors for contact details and meetings. Meeting fund managers who can potentially add value to an investment portfolio. Looking for new business prospects among investors and managers. 

And then it happens. Knowingly or not, we commit one of the Seven Deadly Sins of Conference Attendance. 


There is perhaps no better way to curtail your most earnest conference efforts than to commit one of the following breaches of event etiquette:

The First Deadly Sin: Chasing Investors Like It's A Zombie Apocalypse

(c) Resident Evil

(c) Resident Evil

We all know the shark-to-seal ratio at most investment industry events isn't exactly even. As a result, the investors in the room tend to get a lot of attention. You can see them at cocktail parties, during coffee breaks, or just walking across a room with a trail of hungry investment managers and investor relations folks in their wake. Once, at a GAIM conference in Monaco, they gave out actual proximity detectors to participants. It was like watching the movie Aliens, with investors playing the role of Ripley.

I know every manager that spends money on a conference is hoping to get maximum time with investors, but please, slow your zombie roll. Don't mob investors, and try to keep your interactions to a bare minimum to keep the flow going. You're not going to sell anyone on your fund over a granola bar in a hotel hallway. Keep it simple. Your name. "I'd like to introduce you to my very interesting fund when you have a moment - can I get your card?" Move On. And if an investor is obviously trying to get somewhere (to the coffee, to the can, to a meeting) give them a little breathing room. They'll actually think better of you for it.

The Second Deadly Sin: Hiding From Managers

(c) Mean Girls

(c) Mean Girls

Probably as a result of the first deadly sin, some investors have taken to disappearing during networking opportunities (breaks, cocktails and lunches), in the hopes of grabbing a little peace and quiet and piece of mind. As tempting as this may be, it can be beneficial to resist the desire to escape the maddening crowd. I'm assuming that investors go to conferences to find great investing opportunities. Eating lunch in a bathroom stall (ok, your hotel room) probably isn't the best way to find them. 

The Third Deadly Sin: Cutting In Line

(c) Family Guy

(c) Family Guy

A panel of investors has just finished up. You really want to talk to one (or more) of the presenters. A line of eager fund managers and conference participants has formed as the panel exits the podium. You wait patiently while they smile, shake hands and give cards to those in front of you. Then, out of nowhere, someone comes up, jumps the line and starts chatting up the investor. Worse yet, the next session starts and everyone has to move to retake their seats, leaving dreams of making contact with those investors unfulfilled. NOOOOOOO! So you. Yes you line-jumping fund manager (or marketer). Don't. The investor knows you did it (even if they can't always stop you). The managers who were patiently waiting know you did it (and are silently fuming). And you just look kind of like a tool. Just say no to line jumping. 

The Fourth Deadly Sin: The Nameless Text

(c) Tropic Thunder

(c) Tropic Thunder

You managed to score an investor's card at a cocktail party, lunch or during a break. "What the hell," you think. "I'll send them a text to see if they have time to meet for breakfast or coffee in the morning." So you send a text: "Great meeting you last night. Grab a bite tomorrow am?" The only problem? The investor has NO FREAKING IDEA who you are. For all they know, this message could be a misdial from someone else's beer-goggled evening.

It's never a great idea to text investors anyway, unless you have an imminent meeting or they've given you express permission, but texting without identifying yourself and assuming that the investor will remember you out of throngs of fund managers is just silly. Include your name and the fund name. Or better yet, send an email. 

The Fifth Deadly Sin: The Drive By

(c) The Dukes of Hazzard

(c) The Dukes of Hazzard

Similar to the hiding from managers, the drive by occurs when investors, usually those scheduled to speak, attend an event only for their session. Fund managers, lured to pay event fees in part by the hugely cool and monied speaking faculty, get gypped out of their hard-earned dollars and investors get cheated out of finding good investment ideas for their portfolio. A true lose-lose.  

The Sixth Deadly Sin: The Close Talker/Cornering Folks

(c) Seinfeld

(c) Seinfeld

Conferences are crowded. Conferences are loud. Investors are scarce. One-on-one time is at a premium. That's still no excuse from getting all up in someone's personal space. I have literally been backed into a corner at an event before and, let me tell you, I was not amused. I also once attended a conference after just getting Invisalign. I wasn't entirely used to the Invisalign trays yet, and had just hurriedly scarfed a mint when I was corralled by a fund marketer. Before I knew it, the mint flew out of my mouth and landed on the marketer's arm. I tried to be cool - I picked the mint off of him, said "um, I think this may be mine," and slunk off. But seriously, if you're so close that an Arthur Bell promotional mini-mint with lisp velocity and zero aerodynamics can hit you with enough force to stick to your skin, you are too damn close. An arm's length for distance is a good rule of thumb here. 

The Seventh Deadly Sin: No Business Cards

(c) American Psycho

(c) American Psycho

This one can be a bit tricky as both investors and fund managers are at times guilty. Generally speaking, investors eschew business cards to avoid a post-conference email zombie apocalypse, while fund managers and marketers either don't bring them to (Machiavellian interpretation) force investors into giving their cards up, or because (poor planning interpretation) they underestimate how many cards they will need. 

Dear All: Conferences are networking events at heart. Bring cards and enough of them. That is all.

So there you have it.

Before you hit up your next Hedge Fund, Private Equity, Venture Capital, Institutional Investor or other industry event, make sure you are up-to-date on conference etiquette, or risk being judged in attendee purgatory.  

AuthorMeredith Jones

I love this time of year. The airport delays. The wonky weather. The smell of burning dust in the heating vents. Snow panic that empties grocery store shelves of white bread and whole milk, even if the temperature is stubbornly in the 40s.

Oh, and the look of shiny hope on the faces of fund managers everywhere. 


But before conference season road trips get too far underway, it's probably a good idea to think about where managers are spending their (finite) fund raising resources and where they could ease up on the gas. 

(c) MJ Alts

(c) MJ Alts

As we commence another year of the great capital raising dance, I thought it would be fun to channel all of the back and forth, yes and no, hide and seek frustration into a little game. One that harkens back to a happier and simpler time, and one that anyone who has ever been under 12 or over 60 is familiar with.

So yes, ladies and gentlemen, this year we're gonna play a little Capital Raising BINGO. Simply print out the appropriate investor or fund manager card below and mark off (and date) each time you get a designated response.

The first investor who gets a BINGO can draft me as a single-use meat shield at an event.

The first fund manager who gets a BINGO will also get a prize, custom tailored to the fund in question. 

Happy capital hunting! And may the BINGO odds be ever in your favor!

(c) 2017 MJ Alts

(c) 2017 MJ Alts

(C) 2017 MJ Alts

(C) 2017 MJ Alts

When I was a young lass in Nineteen Never Mind, I used to spend Christmas Day with my mom and the week after Christmas with my dad. He would come for my sister and me in Tuscaloosa, Alabama and drive us all the way to Ft. Worth, Texas for another week of holiday overeating and unwrapping.

It was about a 12-hour drive, door to door, but we tried to make the best of it. My sister, stepbrother and I would clamber into the “way back” with a cooler full of Cokes,bags brimming with healthy snacks like Pop Rocks, potato chips and Slim Jim’s, nestled securely next to my Dad’s Coors that he snuck over state lines, Smokey & the Bandit-style. There, we’ll loll about (with no seatbelts), stuffing our faces (not dying from the Pop Rock/Coke combo) and alternate singing, sleeping and snarking at one another for the entirety of the 12-hour trip.

At some point, we would inevitably get on my Dad’s nerves. There would be over-the-seat, disjointed swats, strong language and finally a threat to “TURN THIS DAMN CAR AROUND AND TAKE EVERYONE HOME.”

We kids thought that was super funny. 

What wasn’t hilarious, however, was 2016 - an epically craptastic annum bad in so many ways that it even made Mariah Carey’s New Year’s Rockin’ Eve performance look apropos.

So, while 2017 is still barely warm, I thought I’d give it a little, tiny warning.

If y’all pull the same stunts this year that you did last year, I’ll turn this year around and take us all home. At the very least, I’ll figure out how to off everyone using nothing but Pop Rocks and warm Coors. You get me?

What am I talking about specifically? Well, here are some of my key investment industry pet peeves from 2016:

Looking in the same tired places for returns, and then pretending shock when they don’t measure up – Investors from Kentucky to New York and a few states in-between reduced or redeemed their hedge fund portfolios in 2016, based in large part on lackluster “average” returns. While many point to “average returns” in the neighborhood of just under 5% though November, perhaps it’s best to look at how the best (and worst) performers are faring. Articles have shown top performing hedge funds gained 20% or more through November 2016. And over the four quarters ending 3Q2016, top HFRI decile funds gained 29.54%. The bottom decile funds lost 15.57%. So there are funds that have performed strongly over the last 12 months IF an investor was willing to look for them and perhaps take risks on lesser known, newer, nicher or funds otherwise “off the beaten path.” It kind of reminds me of the old joke “Doctor, doctor, it hurts when I do this…” How ‘bout in 2017, we stop doing that, lest it continue to hurt.

Using “averages” to talk about investment funds, particularly alternative investment funds – Speaking of, with the kind of return dispersion above, why don’t we stop talking about “average returns” full stop. Even when it comes to white-bread mutual funds, getting fixated on “average” returns doesn’t really help. How do I know? One of the top, non-indexed US mutual funds returned 30% in 2016. Yeah, I said 30-freakin’-percent, more than twice the return of the S&P 500. But by fixating on “average return,” no matter what the asset class, investors may in danger of writing off entire investment strategies based on normalized returns that don’t accurately represent reality. In 2017, let’s focus more on the opportunities unveiled by return dispersion and less on pesky averages, shall we? Oh, and the same thing goes for fees discussions, too.

Saying you want to hire diverse talent, but complaining that you “just can’t find any” – So I’ve heard (or read about) more than one asset management firm complain about how they’d “love to hire women and minorities” but they “just can’t find qualified applicants”, and they’re not willing to lower their standards. Come. On.

Women comprise 50.8% of the U.S. population according to the Census Bureau. Minorities make up nearly 23% of the U.S. population. Do some simple math on the number of women and minorities in a population of 323,127,513 and it boggles the mind that there are ZERO qualified diverse applicants.

Indeed, when I read or hear this, one of a few questions generally comes to mind:

  1. How homogenized is this person’s personal network and how might that impact other investment research and decisions?
  2. How much effort does this person put into finding diverse candidates? Do they contact recruiters who specialize in the area? Do they go to conferences put on by 100 Women in Hedge Funds, NASP, the NAIC, and others?
  3. If there is a pipeline problem in this person’s line of work and they genuinely want to fix it, what are THEY doing to fix this issue in the long-term? Do they bring in diverse interns? Diverse entry-level positions? Do they promote these individuals?

Inappropriate benchmarks – Why, oh why, do we benchmark every damn thing to the S&P 500? It’s become so pervasive that I just caught myself doing it above (the top performing mutual fund invests in small caps, not S&P-level stocks) and I know better. Just because it’s well known, and just because it’s been crammed down our throats by everyone from consultants to financial advisors, doesn’t mean it always fits. Small cap fund? Ixnay on the S&P-ay. Hedge funds? Can’t be expected to outperform in bull markets because they are HEDGED. Private equity & venture capital – comparing illiquid investments to a liquid benchmark seems a bit silly, no? So in 2017, let’s either agree to benchmark appropriately so we can make a sober decision about whether an investment has performed well (or not) OR let’s just decide to sell everything and invest only in the S&P 500, since it’s where it’s at, obviously.

Communicating inappropriately – This may be just a “me” thing, but in 2016 I noted an increasing number of asset managers who text investors. What. The. Actual. Hell. Texting is informal. Texting is immediate and insinuates you deserve an instant response. Texting invites typos. Texting doesn’t allow for compliance review or disclaimers. Unless you are meeting someone that day and need to say you’ll be late, early, or identifiable by the rose in your lapel, or unless that investor has given you express permission to text, don’t. The investors I know who put their mobile numbers on their cards are coming to regret it. And if you lose that, you’ll only spend more time waiting on callbacks.

So cheers, all, to a happy, healthy, prosperous, properly benchmarked 2017. May we lose fewer of my 80s idols and more of our investing bad habits.







Photo credit:

Copyright: <a href='http://www.123rf.com/profile_artzzz'>artzzz / 123RF Stock Photo</a>

Even if the songs tell us it's the most wonderful time of the year, when bells will be ringing and children are singing, for many emerging fund managers, the holidays may simply be the end of another  difficult year of fundraising. To help you navigate any holiday season depression and just maybe put things in perspective a bit, I've put together a guide to managing the 5 Stages of Emerging Manager Grief. I hope it (combined with a lovely hot buttered rum) eases you through the holiday season. 

(C) 2016 MJ Alts

(C) 2016 MJ Alts

It’s that time of year again. The leaves are turning pretty colors. Kids are back in school. There is a real possibility of leaving my air-conditioned Nashville home without my glasses fogging upon hitting the practically solid wall of outdoor heat and humidity. And like any good Libra lass, I’m celebrating a birthday.

That’s right, it’s time for my annual orgy of champagne, mid-life crisis, chocolate frosting and introspection. Oh, and it’s time to check the batteries on the smoke detectors – best to make sure those suckers are good and dead before I light this many candles.

One of the things I’ve noticed in particular about this year’s “I’m old AF-palooza” is how much time I spend thinking about sleep. On any given day (and night), I’m likely to be contemplating the following questions:

  1. Why can’t I fall asleep?
  2. Why the hell am I awake at this hour?
  3. How much longer can I sleep before my alarm goes off?
  4. Why did I resist all those naps as a kid?

I even bought a nifty little device to track and rate my sleep (oh, the joy’s of being quantitatively oriented!). Every night, this glowy orb tracks how long I sleep, when I wake, how long I spend in deep sleep, air quality in my bedroom, humidity levels (in the South – HA!), noise and movement. 

To sleep, no chance to dream

To sleep, no chance to dream

Yes, I’ve learned a lot about my nocturnal habits from my sleep tracker – for example, I move around 17% less than the average user of the sleep tracking system, I’m guessing due to having two giant Siamese cats pinning me down - but the one thing I didn’t need it to tell me was that I SUCK at sleep.

I’m not sure when I went from “I can sleep 12 hours straight and easily snooze through lunch” to “If I fall asleep RIGHT NOW I can still sleep 3 hours before my flight….RIGHT NOW and I can still get 2.75 hours…1.5 hours….” but it definitely happened.

I don’t drink caffeine. I exercise. I bought a new age aromatherapy diffuser and something helpfully called “Serenity Now” to put into it. I got an air purifier, a new mattress and great sheets.

But no matter what I try, I am a terrible sleeper.

I’ve concluded that it must have something to do with stress. I do spend an inordinate amount of time thinking about life, the universe and everything, so perhaps that’s my problem.

So in honor of my 46th year on the planet, I decided to compile a list of the top 46-investment related things I worry about at night. They do say admitting the problem is the first step in solving it, after all.

In no particular order:

  1. $2 trillion increase in index-tracking US based funds, which leads me to…
  2. All beta-driven portfolios
  3. Short-term investment memory loss (we DID just have a 10 year index loss and it only ended in 2009…)
  4. “Smart” beta
  5.  Mo’ Robo – the proliferation (and the dispersion of results) of robo-advisors
  6. Standard deviation as a measure of risk
  7. Mandatory compliance training - don’t I know not to take money from Iran and North Korea by now?
  8. Spurious correlations and/or bad data
  9. Whether my mom’s pension will remain solvent or whether I have a new roommate in my future
  10. Politicizing investment decisions
  11. Did I really just Tweet, Blog or say that at a conference?
  12. Focusing on fees and not value
  13. Robo-advisors + self-driving cars equals Skynet?
  14. Going through compliance courses too quickly & having to do them over again
  15. Short-term investment focus
  16. Will I ever have to wait in line for the women’s bathroom at an investment event? Ever?
  17. Average performance as a proxy for actual performance versus an understanding of opportunity and dispersion of returns
  18. The slow starvation of emerging managers
  19. Is my industry really as evil/greedy/stupid as it’s portrayed
  20. Factor based investing – I’m reasonably smart – why don’t I get this?
  21. Dwindling supply of short-sellers
  22. Government regulatory requirements, institutional investment requirements and the barriers to new fund formation
  23. “Chex Offenders” – financial advisors and investment managers who rip off old people (and, weirdly, athletes)
  24. The vegetarian option at conference luncheons – WHAT IS THAT THING?
  25. Seriously, does anyone actually read a 57-page RFP?
  26. Boxes...check, style, due diligence...
  27. Tell me again about how hedge fund fees are 2 & 20…
  28. The markets on November 9th
  29. The oak-y aftertaste of conference cocktail party bad chardonnay
  30. Drawdowns – long ones mostly, but unexpected ones, too
  31. Dry powder and oversubscribed funds
  32. Getting everyone on the same page when it comes to ESG investing or, hell, even just the definition
  33. Forward looking private equity returns (see also: Will my mom’s pension remain solvent)
  34. Will my investment savvy and sarcasm one day be replaced by a robot (see also: Mo’ Robo)
  35. After the election, will my future investment jobs be determined by my membership in a post-apocalyptic faction chosen by my blood type?
  36. How many calories are in accountant-provided, conference giveaway tinned mints? (See also: conference chardonnay)
  37. Why are financial advisors who focus on asset gathering more successful than ones that focus on investment management? #Assbackward
  38. Dunning Krueger, the Endowment Effect and a whole host of ways we screw ourselves in investment decision making
  39. Why divestment is almost always a bad idea
  40. Active investment managers – bless their hearts – they probably aren’t sleeping any better than I am right now
  41. Clone, enhanced index and replication funds – why can’t we just K.I.S.S.
  42. The use of PowerPoint should be outlawed in investment presentations. Like seriously, against the actual law - a taser-able offense.
  43. Will emerging markets ever emerge?
  44. Investment industry diversity – why is it taking so looonnnnggg?
  45. Real estate bubbles – e.g. - what happens to Nashville’s market when our hipness wears off? And is there a finite supply of skinny-jean wearing microbrew aficionados who want to open artisan mayonnaise stores that could slow demand? Note to self, ask someone in Brooklyn….
  46. Did anyone even notice that hedge funds have posted gains for seven straight months?

Yep, looking at this list it’s little wonder that sleep eludes me. If anyone can help alleviate my “invest-istential” angst, I’m all ears. In the meantime, feel free to suggest essential oils, soothing teas and other avenues for getting some shuteye.


Sources and Bonus Reading: 

Asset flows to ETFs: https://www.ft.com/content/de606d3e-897b-11e6-8cb7-e7ada1d123b1

Recent HF Performance (buried) http://www.valuewalk.com/2016/10/hedge-fund-assets-flows/

HF Replication: http://abovethelaw.com/2016/10/low-cost-hedge-fund-replication-may-threaten-securities-lawyers/

Average HF Fees: http://www.opalesque.com/661691/Global_hedge_funds_slicing_fees_to_draw_investors169.html

Political Agendas & Investing: http://www.njspotlight.com/stories/16/10/03/murphy-adds-plank-to-platform-no-hedge-funds-in-pension-and-benefits-system/

Asset Gathering vs. Investment Mgmt: http://wealthmanagement.com/blog/client-focused-fas-more-profitable-investment-managers

World's Largest PE Fund: http://fortune.com/2016/10/15/private-equity-worlds-largest-softbank/  

Spurious Correlations: http://www.bloomberg.com/news/articles/2016-10-14/hedge-fund-woes-after-u-s-crackdown-don-t-surprise-sec-s-chair

Short-Term Thinking - 5 Months Does Not Track Record Make: http://www.cnbc.com/2016/10/14/venture-capitalist-chamath-palihapitiyas-hedge-fund-is-outperforming-market.html


Every time I turn around, I find a manager looking for seed capital. Many are frustrated with what I like to call "second dollar syndrome" - the fact that everyone seems happy to be the second dollar in your fund, but few want to commit the first dollar - and dream of a seed investment as a way out of the fund raising drudgery.

If you're on the early-stage capital trail, it can be helpful to understand the nuance of seeding and acceleration capital so you know better when to hold 'em and when to fold 'em, know who's 'bout to walk away and who's there to fund. So here are a few pointers that apply to seed and accelerator capital (even if it just says seed in some spots for brevity's sake) that I hope lead you to your own vat of miracle grow.

(c) 2016 MJ Alts

(c) 2016 MJ Alts

Dear MJ:

About 10 years ago, I became involved with a very special investment. I had my eye on it for a while, you see, and had noticed things about this investment that really appealed to me. It was different than the other investments I had known, less restricted, and, dare I say it, maybe even a little uninhibited. But it seemed to always be there for people when the markets were down, and that really turned me on.

I started looking into getting involved with this investment and, based on what I was able to research, learned that others had a generally good, though occasionally volatile, relationship with investments similar to mine. I saw how happy those family offices and high net worth individuals were over the long term. I watched their investments support them through the tech wreck, and I wanted a that special relationship, too.

But as much as my heart screamed “invest!” my head, and the heads of those around me urged caution. So I gave in, but not without a few stipulations. The investment would have to change, you see. Not the things I loved – no, I wanted the long-term happiness and the unwavering support. But I didn’t want our relationship to be volatile. And the freedom, well, that made me a little nervous, too. And I really wanted my friends to like my investment, too. So I asked it to clean itself up, move into better digs, and I insisted it hire people to ensure it didn’t step out of line. I even hired people to monitor it, too. And several people close to the investment? Well, they promised it would never hurt me.

Now, 10 years later, our relationship has changed. My investment doesn’t make me as happy as it should. It’s like it’s not even trying.  Some of my friends have become disillusioned with my investment, and a few are even pressuring me to dump it. They argue that I pay for everything and am not getting much out of it in return.

So, Dear MJ, what’s an investor to do?


Hedged Up

My Dear “Hedged Up”:

I’ll be honest: I’ve received quite a few letters like yours lately. Egged on by a strong market, vociferous press coverage and contentious board meetings, there’s a lot of fed up investors all over the world right now wondering how we got here. I’m not entirely sure I have the answers, but as an investment voyeur for more than 18 years, I can definitively say that the investment you fell in love with? Well, it’s changed.

In the late 90s up through most of the tech wreck, I was working at Van Hedge Fund Advisors, which some of you may remember as one of the first consultants that worked with investments like yours. At that time, our proprietary database tracked just under 5,000 funds. Some were good. Some were bad. Some ended up being frauds. At least one, Long Term Capital Management (“LTCM”), blew up spectacularly during my first six months on the job.  

Our clients were primarily high net worth individuals and small family offices. We worked with some endowments and wealth management firms, but, in general, the client base was not institutional. In fact, per Citibank, only $125 billion of hedge fund assets under management (or roughly 20%) were institutional prior to 2002.

Returns prior to LTCM were reported by fund managers to Van Hedge primarily quarterly, changing to monthly starting in 1999. By 2000, all of our funds were reporting at least monthly. After the market started melting down, most of our key hedge fund relationships also provided weekly estimates, although many portfolios remained relatively opaque. Funds had wide latitude to do what they wanted when they wanted, and the words “strategy drift” had not gained traction.

Staff was lean. The term “two guys and a Bloomberg” was used to describe funds and it wasn’t meant as an insult. The SEC periodically audited those funds registered as investment advisors, which most were not, and overzealous compliance had yet to become the norm.

Performance, on average, was quite strong, although more than a few “long/short equity” funds were more than 90% net long, capturing the returns of the “greatest bull market in history.” When the market began to sell off, hedge funds in general also flourished (although those 90% net long funds lost their butts). “If there is one thing at which hedge funds excel, it is in avoiding highly publicized, highly priced investments that indexes, by virtue of their construction, must own. Most hedge funds shone during the 2000-02 technology sell-off,” noted even a September 2016 article on the infamous “Buffett Bet” against hedge funds.  

Was the relationship between funds and investors perfect?

Hell. No.

Did fund managers occasionally fake their own kidnappings or end up on 20/20?

Hell. Yes.

But it was what it was. And what it was spawned the investment profile you were so attracted to initially.

And now?

Well, now we’re in an entirely different ball game. The amount of money, the type of investor, the expectations, the regulations, transparency, the number of managers….well, they’re ALL different. And it would be ludicrous to think that those wholesale changes would not have an impact on your investment individually, and on the industry overall.

So what’s changed?

Assets Under Management – The size of the hedge fund industry more than doubled between 2002 and 2007. It grew from $625 billion to $1.8 trillion in five years per Citibank, and the main driver of that growth was some $750 billion in assets poured in by institutional investors. That’s a lot of cash for any industry to eat without some serious indigestion.

Number of Funds – The number of funds increased from the Van Hedge database of 5,000 to the widely accepted industry average of 10,000 between 2002 and 2007. That’s a helluva lot of new funds. Wannabe fund managers flocked to the hedge fund industry to capture higher than mutual fund fees and assets flowing like champagne at a P-Diddy party. And, because hedge fund-land ain’t Lake Woebegone, every fund is not above average. Some of those new entrants struggled to put up decent performance numbers. Prior to 2010, low barriers to entry meant those funds could bootstap a business for years with friends & family funds and few expenses. Now those funds are getting shaken out of the industry. Frankly, that probably needs to happen – those funds aren’t helping industry averages or its street cred. But, overall, I still believe there is a tremendous amount of talent in the hedge fund industry. You just may have to diligence more frogs to find it.

Type of Investors – The HNW individuals and family offices Van Hedge dealt with didn’t really care if they had daily transparency, if a manager invested in something off the beaten path, or whether there was a dedicated CCO, COO, and CFO at the fund. SEC registration wasn’t an issue, nor was an “institutional quality” back office. Concentration limits and stop losses were nice, but not necessary. Was this perhaps a little naive and potentially even a little dangerous for investors? Um, yeah. Sometimes you were the windshield and sometimes you were the bug. But, it has to be said, the expectations, controls, investing parameters and infrastructure that was expected by institutional investors starting in 2007 has a cost associated with it, both in terms of actual expenses (which reduce returns) and in lizard-brain opportunity costs. In today’s investing environment, you may never be the bug, but you’re also a lot less likely to be the windshield.

Marketing – In my early days at Van Hedge, hedge funds were pretty honest about what they were. Many fund managers did their own marketing and stressed strategy, smarts, nimbleness, and a willingness to adapt, adjust, and evolve. Over time, that messaging evolved. The concept of “absolute return” was introduced and almost immediately bastardized. I will never forget a business trip to Japan post-2008 when many of the investors I talked to had been sold hedge funds as a fixed income substitute. WT-Actual-F? Absolute return was never meant to imply that an investment absolutely generates positive returns every month, quarter, year or rolling period, and those that marketed that way did the industry, and investors, a tremendous disservice.

In short, the investment you fell in love with, Dear Reader? It HAS changed - in part, because you asked it to, in part because it was a victim of its own success and in part because expectations on both sides of the fence became disconnected from investment reality.

The question for you, Hedged Up, and for all of those who are disappointed with their “absolute return” portfolio is this: Can you remember what really attracted you to the investment in the first place? Was it the performance? Was it the diversification? Was it the correlation? Was it the belief that you’d never know a single moment of return sadness? Once you’ve figured that out, Dear Reader, you can take a step back from your former investment love and see if there are ways to achieve those goals within today’s hedge fund landscape. I just bet you can find true investment love this time..

Sources: http://www.citibank.com/icg/global_markets/prime_finance/docs/Opportunities_and_Challenges_for_Hedge_Funds_in_the_Coming_Era_of_Optimization.pdf


AuthorMeredith Jones

It's often quite amusing to me to chat with friends and associates outside of the investment industry about the investment industry. The vision that many folks have about the typical hedge funders' day-to-day existence is one part conspiracy theory, two parts lies and debauchery and a final part douchebaggery. So, to help clear up some of the most common misconceptions about working in alternative investments (specifically hedge funds), I thought it might be helpful to create a simple visual aid separating hedge fund fact from fiction. May this give you a giggle as you attempt to re-acclimate to work after the long weekend. 

Please note: I don't think that the hedge fund industry is in imminent danger of going away, but I do think that, like in Westeros, there will likely be some carnage before we make it through this round of poor average performance and fee, tax and regulatory pressure. Oh, and I don't own any of the images above. And finally, you may have to be 40+ or a bone fide cinematic geek to understand some of the references (Hint: Trading Places, Dr. No, Hitch), but I think you'll get enough of the picture. That is, hedge funds: More PowerPoint than "power suit, power tie, power steering."