Funds Hub
Money managers under the microscope
Robert Olman: Hedge funds adapt after ‘perfect storm’
Guest blogger Robert Olman is President of Alpha Search Advisory Partners.
The views expressed here are the author’s own and do not constitute Reuters point of view.
The ‘perfect storm’ of 2008 revealed several flaws in the hedge fund model.
With the decision by multiple funds to drop their gates in response to a tsunami of redemption requests, the mismatch of the liquidity in the funds’ investment portfolio and the liquidity provided to the investors became apparent.
Forward-thinking hedge funds are launching new funds (or restructuring) to resolve the liquidity mismatch while maintaining the integrity and scope of their investment process in a number of ways.
For example, many firms are using paired offerings, especially in the credit, ABS and distressed spaces: one with monthly lock-ups and conservative target returns, which will invest in liquid products; the second with longer lock-ups, approaching a private equity-like structure, with more aggressive target returns.
Through a glass darkly
The fund of hedge funds concept took a serious knock last year with Bernard Madoff’s $65 billion fraud, leading high net worth investors to pull out money over concerns that the due diligence hadn’t been quite as diligent as one would hope.
Even managers who weren’t exposed to Madoff had to calm client fears. This has prompted the bigger, more institutional groups to seek ways of gaining more control over assets that the underlying managers are running.
