Money managers under the microscope
GAIM 2009: Troublesome teens
Growing up can be a painful experience for teeangers with many battles and excesses along the way.
The good news, according to Jefferies International’s Kevin Pakenham, speaking at this week’s GAIM hedge fund conference in Monaco, is that while its list of problems may be long, they can be overcome.
“The (traditional) asset management industry is in effect a mature industry, with a revenue base threatened by developments such as indexation and ETFs, and the difficulty of producing alpha.
“Alternatives continue to be an industry of innovation … and has many of the characteristics of an adolescent industry. It has problems, but I suggest these are reputational and technical and can be solved.”
Pakenham lists six major challenges for an industry that has seen total assets practically halve, investors head for the exit and many firms close.
- restoring the economics or profitability of hedge funds
- arguing against too-tough regulation
- addressing ‘performance constraints’ that come from a lack of leverage or illiquid markets
- restoring the credibility of funds of funds
- the need for consolidation (“fine in theory, tough in practice due to uncertainties about valuation”, he says)
- restoring funds’ promise to investors on liquidity
He adds: “Hedge funds need an understanding that flair, promise and individual brilliance and everything that goes with that, such as opacity and a certain mystery, are not enough to build a long-term industry that the clients of managed funds really require.”
It seems adulthood could be some way off yet.