The last week has seen a flurry of debate of what CalPERS’ hedge fund divestment actually means in the bigger picture.
Is this an instance of just one fund shifting its investment strategy? Or is it emblematic of a larger, accelerating trend?
Agecroft Partners believes we will see the following 5 outcomes:
1. Continued pressure on hedge fund fees for large mandates
Over the past 5 years there has been a strong trend of hedge funds increasingly offering fee breaks for large pension funds and the clients of institutional consulting firms. These fee breaks began with a discount on management fees only, but now often includes performance fees. Fee breaks vary by manager, but for a typical hedge fund with a 2 and 20 fee structure the discount is often 25% off standard fees…
2. Pension funds will continue to increase their allocation to hedge funds
The average public pension fund will continue their long term trend of increasing their allocation to hedge funds in order to enhance returns and reduce downside volatility of their portfolio…
3. More focus on smaller hedge fund managers
In a study conducted from 1996 through 2009 by Per Trac, small hedge funds outperformed their larger peers in 13 of the past 14 years. Simply put, it is much more difficult for a hedge fund to generate alpha with very large assets under management…
Steinbrugge writes much more over at the link, here.
Steinbrugge is the Founder and Managing Partner of Agecroft Partners, a global hedge fund consulting and marketing firm.