Smaller hedge funds in vogue
Ernst & Young's 2012 Global Survey Hedge Fund and Investor Survey has found that a significant number of investors may be boosting their allocations to emerging and start-up funds.
Forty-five percent of the investors believe that emerging and start-up hedge funds could generate better returns and might offer better negotiated terms, as noted by Value Walk. This moves against the grain of conventional wisdom just a bit in that many people thought that large, established hedge funds had an advantage in the market place and that small funds would struggle. Indeed, more than a few small funds have really been hit hard as of late.
"A rising number of small hedge funds are shutting their doors, with houses run by former investment bank proprietary traders being particularly badly hit by rising costs and difficulty in attracting assets. The mounting burden of regulatory compliance is proving particularly damaging to smaller hedge funds," notes the Financial Times.
The reality is that longevity will be hard to come by as a small fund, especially now. Those that manage to attract assets will do so by performance. The trick then is to build an infrastructure in terms of compliance and investor relations that can make the fund seem like a big fund, even as it offers the returns of a small nimble firm. So it makes sense that investors are boosting allocations to small funds, even as more of those funds go out of business.
- here's the FT article