It is a constant bane of the life of the allocator, because yesterday’s star managers become inaccessible, either due to hard closing or voluntarily returning capital to investors, in many cases after delivering excellent returns to their investors. Many others are either soft closed or hard closed, which generally makes them hard to access in the substantial size that pension funds – key sources of inflows – require. Some managers have also fallen by the wayside due to lacklustre numbers.
Aside from our own research, buy side and sell side alike contributed nominations to the survey. The prime brokerage capital introduction networks are naturally a strong source of market intelligence. So too are some funds of funds, although increasingly institutional allocators are dealing direct, making it imperative for us to talk to pension funds, insurance companies, family offices, endowments and foundations.
Investment banks supply a number of the nominations, accelerated by new regulations in the US and in Europe that are hastening the banks’ withdrawal from proprietary trading activities. If the Volcker rule, embodied in the Dodd-Frank legislation, is critical in the United States, then it may be that higher capital requirements ushered in by Basel III will impact in Europe. The GSPS (Goldman Sachs Principal Strategies) group seems to be a perennial source of new managers, while it lasts!
The hedge fund industry is a constantly evolving pool of talent with thousands of funds employing tens of thousands of investment professionals. We cannot conceive that our nominations could ever come close to being comprehensive, let alone that our final choices could leave any gem undiscovered. The search for new sources of diversification and talent is never ending, and we look forward to hearing about managers we have never heard of in future surveys.