Allocators Are Backing Smaller Hedge Funds, If They Are ‘Institutional Enough’
Allocators are not so concerned with AuM size as they once were, and more willing to support younger, hungry hedge funds.
This finding was unearthed from the latest AIMA-Marex Emerging Manager Survey of 180 managers and 50 global institutional investors. Nearly half would invest in a fund with less than a year of proven performance, and 72% would look into firms managing less than $100 million in AuM.
Concurrently, where the average minimum fund size for consideration was $151 million four years ago, this has considerably dropped to around $94 million today.
The cause for this sea change is perhaps linked to emerging managers institutionalising at a rate much faster than years past. For example, the average headcount per firm has climbed to 10, as has breakeven AuM, following funds’ increased resources toward technology, compliance, investor relations and infrastructure.
That latter factor is pivotal: investors themselves are pushing for far greater control and transparency around firms’ fund structures. Offshore funds are less desirable than onshore counterparts and separately managed accounts.
This opens the once-gated barriers for smaller hedge funds to make their mark (where the traditional entry-points of minimum AuM and track records are reducing.)
What does this mean for hedge fund marketers?
Organisational discipline is emerging as a glaring needle-mover when a fund’s size is not as prevalent a deciding factor when assessing investment opportunities.
So, this is where marketers and IRs have to position their messaging to appear ‘institutional enough’, and not just ‘big’. It is more complicated than making simple tone changes, though. A fund with $50 million in AuM can be considered as it may not have been years ago, and therefore must provide the same consistent and ample investor content, DDQ readiness and reporting processes as we see at larger, established firms.
Marketing and IR teams at younger managers can then double-down earlier to pitch their differentiated strategy, while upholding the compliance disclosures and service-provider information in the background to solidify that operational robustness allocators are clearly keen for.
