More experienced and sophisticated Pension Funds  are frequently investing in hedge fund strategies directly rather than through Funds of Funds.  Consulting players like Albourne  Partners, Aksia and Cliffwater are winning a bevy of new business through projects requiring sophisticated analytical knowledge of the hedge fund market.  More here, http://bit.ly/nlQM9J

  ********  IvyPlus info next fund business development event – http://bit.ly/nAGMm7 ****** 

Ron Suber, senior partner and global head of sales and marketing for Merlin Securities, recently shared his thoughts with IvyPlus about how managers can more effectively market their products and strategies to investors. Ron’s presentation addresses some of the key points made in Merlin’s two most recent white papers: “The Spectrum of Hedge Fund Investors” and “The Business of Running a Hedge Fund.”

So what are Ron’s recommendations for managers looking to get to the next level of AUM? Simple: have your business in order, know your investors and tell your story to them effectively.

The presentation is available at http://slidesha.re/gL9Gqn, and Ron’s white papers are posted at http://merlinsecurities.com/whitepapers.

 ********  IvyPlus info next fund networking event – http://bit.ly/jN0k1i  ****** 

It’s a worst kept secret that alpha in hedge funds is frequently realized with smaller "emerging" managers as larger funds outgrow their strategy’s ability to generate non-correlated returns.   More institutional managers are acting on the realization that some of their larger funds have become more asset accumulators than alpha generators and are switching investment to emerging managers.  Calpers, NJ, NY and Illinois all have programs for emerging managers as does Duke University.  

PI Online reports that more institutional quality investors are taking deeper looks at emerging managers and their strategies to generate alpha.  

Albourne’s Richard Quigley says 

"We are seeing broad and significant interest in making increased allocations to emerging managers. Actual activity (i.e. funding) has been light, but we believe we are in the early innings”

Busara Advisors, a New York fund of funds received $150 million from a large California based pension fund.  

You can find out more here - http://bit.ly/jIoXpO

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 Bloomberg reports that the Geneva fund of funds business is feeling the after-effects of the Bernie Madoff era.   Two years to the date after Madoff’s arrest, assets total $14.8 billion, a 60% plunge from 2008.  Will Geneva become less of a destination for fund managers looking for capital?  More from Bloomberg.

"Union Bancaire Privée, Banco Santander SA’s Optimal Investment Services and Notz, Stucki & Cie. are among at least seven Geneva-based firms that suffered $7 billion of losses from the Madoff fraud. The model the city’s banks helped pioneer in the 1960s is broken and faces competition from investments that charge lower fees, said Drago Indjic, project manager at the London Business School’s Hedge Funds Center.

“Funds of funds won’t explode or implode but slowly fade, death by a thousand cuts,” Indjic said."

More here, http://bit.ly/faYWVZ 

********  IvyPlus February 27th How to Run Your Hedge Fund as a Business Event – http://bit.ly/eEqTKO   ******

Merlin Securities released their latest research article, this time focused on helping hedge fund managers identify, understand and market to the right investors.

The white paper, titled “The Spectrum of Hedge Fund Investors and a Roadmap to Effective Marketing,” analyzes the 10 most common types of hedge fund investors (from “Partners, Friends and Family” to “Sovereign Wealth”) along a spectrum from the least “institutional” to the most. The article then defines a four-stage marketing program designed to help funds identify and effectively reach the types of investors most appropriate for their respective funds.

The article includes two helpful charts and some interesting context on the current environment for hedge fund managers and their investors. Interesting reading as always from Merlin.

The full article is available here: http://merlinsecurities.com/pr/spectrum.pdf

  ********  IvyPlus October 19th Fund Business Development Event –  http://bit.ly/bED7IC  *******

Denver Employees Retirement Plan hired hedge fund-of-funds manager Prisma Capital Partners to run $80 million.  The commitment represents 5% of the $1.6 billion plan’s overall portfolio and is the plan’s first hedge fund-of-funds allocation.  The move is part of the plan’s revised asset allocation, which reduced its core fixed-income allocation by 4.5 percentage points to 17%

You can find out more here, http://bit.ly/bohnZy

********  IvyPlus August 24th Fund Business Development Event –   http://bit.ly/aH0oi1  *******

Interesting reading from Heidrick & Struggles’ "Hedge Fund Industry Trends" report.  Key findings are:

(1) A pickup in merger activity

(2) Stronger asset flow into funds

(3) More transparency and liquidity

(4) An increase in hedge fund startups

(5) Aggressive hiring of marketing agents in the industry.  

More findings on the marketing side of hedge funds are:

(a) Marketing and Investor Relations professionals are in high demand

(b) European FOF marketers moving to single strategy funds

(c) More than 55 marketers changing firms with 30 firms aggressively seeking marketers

(d) Average 2009 total compensation ranges for marketing professionals included:

• Group Head: US$1,200,000 – US$3,000,000*

• Managing Director: US$1,000,000 – US$2,500,000

• Vice President: US$450,000 – US$850,000

• Associate Vice President/Senior Associate:  US$170,000 – US$500,000

You can find more here, http://bit.ly/bicYob

********  IvyPlus August 24th Fund Business Development Event –   http://bit.ly/aH0oi1 *******

Institutional Investor Magazine blogs Hedge Funds are outstripping PE firms in capital raising.  PE firms have only raised $50 billion in the last quarter while only investing $26.6 billion in that same period. Fundraising time lines now stretch from 12 to 18 months for mature funds. 

However, the two industries use different terminology to identify how much capital they have allocated.  Understanding that difference shows HF actively managed assets are far greater than PE actively managed assets.  You can find more info here, http://bit.ly/brcigz

The proper terms Hedge Funds use for the money they trade under their own account is Assets Under Management (AUM).  At times, hedge funds may be inactive in trading or be in a cash position but their assets are still held under their own account.  Again there is a secondary consideration which is how much of any hedge fund’s assets are "Managed Accounts" .  Managed Accounts encompass a broad array of assets held by an asset manager which may be traded by a hedge fund manager on a contractual basis.  In additions, there is proprietary trading which is done by major banks and other asset managers who separately trade their own book with potentially differentiated positions than those of their clients.  We assume the $2 trillion in AUM widely quoted for hedge funds comprises only assets actively managed in a fund by hedge funds and not Managed Accounts.

With respect to Private Equity the $1 trillion of capital commitments is different than AUM in that many cases the actual capital on call is not in a fund structure but can be called upon at a certain point when the PE firm needs the capital.  Under different legal terminology, capital on call can be called at different intervals of time.  Some contracts may stipulate such terms as being over a 3 – 5  year period, never to exceed 40% of the total capital committed over a 1 year period.   In other cases, the call period could be longer and investors may anticipated returns from their year 1 investment to feed a year 4 plus investment or follow on fund issuance.  Other times, capital on call could be capital with rights of first refusal such as in the case of search funds.  Moreover in most hedge funds AUM is constantly reinvested but with PE firms, other legal clauses can require that all assets invested are returned when a deal is exited.  There are few industry-wide figures on capital on call vs actual assets under management but we think PE firm capital call commitments have largely been upset by the massive post-2007 asset valuation decline and there are cases where PE firms are not making capital calls on Limited Partners if they have not returned capital to those same LPs in the same time frame.

When looked at side by side, HF actively managed AUM on a daily basis far outstrips PE actively invested AUM on a significant basis. 

 ********  IvyPlus June 15th Fund Business Development Event –  http://bit.ly/aToA1J  *******

A paper released by HEC Montreal Department of Finance professors analyzes the pure persistence of fund strategies and reviews the ability of different strategies to continually reach high water marks.  With more than 10,000 hedge funds globally (more hedge funds than Starbucks), investors should question the ability of strategies to continually perform.  With more than 80% of funds under their high water marks in 2008, investors need to consider (a) their fund strategies’ ability to return to their high water mark and (b) the strategies average time to return to that figure.  Using Markov analysis, the professors were able to derive average time for different strategy categories to return to prior highs and likelihood that those highs would be met.  You can download the paper and derivations here, http://bit.ly/ctEqW1

A discussion of the analysis in more layman’s terms occurs here, http://bit.ly/95KSXW

Conclusions are:

• It is more challenging to increase high water marks than to generate positive returns, because typical negative returns are greater in magnitude than typical positive returns.
• The bigger the difference between probability of positive return and probability of increasing high water mark (see the first chart below), the greater the time to recover from losses. Across strategy classes, the average time to recover a capital loss ranges from 2.49 months to 7.15 months.
• Strategy classes with greater persistence in reaching new high water marks (see the second chart below) tend to recover from losses more quickly.

********  IvyPlus June 15th Fund Business Development Event – http://bit.ly/aToA1J *******

SkyBridge Capital is in the process of closing out a deal with Citi to acquire three hedge fund businesses from Citi.  This is a diversification or forward integration from  SkyBridge’s core seeding strategy into the Fund of Funds business.  Scott Prince, the managing partner of SkyBridge Capital says that this acquisition will make SkyBridge the biggest hedge fund seeder and is estimated to quadruple their profit once the agreement is fully settled in June.  More info here,  http://bit.ly/9GdPA5 . 

As 2010 advances, the business for M&A in FOFs grows as uncertainty in the market continues.  Multiple reasons for FOF uncertainty include (1) the business may no longer be strategic to their financial supermarket owners such as CAI or Ivy Asset Management, (2) are under fee pressure even as returns have improved, or (3) are seeing more of their own institutional investors create investment groups that bypass FOFs. Other targets include, Rock Creek Group, Mesirow Advanced Strategies Inc., Pine Grove Associates Inc. and Archstone Partners. Ted Gooden of Berkshire Capital, a past speaker at Ivy Plus seminars, says "The growing list of acquirers is a sign that “the unrequited buyer-seller love” that characterized most of the past decade is over"  .  More info here, http://bit.ly/a2Re0m

********  IvyPlus June 15th Fund Business Development Event – http://bit.ly/aToA1J *******