Looking Ahead to 2011: The Hedge Fund Industry Speaks (Part I)

Dec 21 2010 | 9:02pm ET

The future, as Yogi Berra once said, ain’t what it used to be. And while predicting it is an art, not a science, we couldn’t resist asking a few of the people we’ve spoken with this year what they think 2011 holds for the world’s financial markets in general, and hedge funds in particular.

Here, without further ado, is the first installment of responses from hedge fund industry experts, with more to come in the following days.

Rory HillsRory HillsRory Hills, Founding Partner, Hilltop Fund Management

“Part of our approach and philosophy is to generally avoid making macro calls and especially of the ‘what will do well next year?’ variety.  That said, one issue we will watch for is to see if the level of inter-stock correlation in equity markets continues to be as high in 2011 as it has been for long periods of 2010.

“This has been driven by a binary 'risk on/risk off' approach by many investors which has often resulted in equities moving likes shoals of fish. This, combined with generally poor liquidity has created a difficult environment for many shorter-term equity trades, whether fundamental or systematic. 

“In respect of fund of hedge funds, I would say this: We believe too many FoHFs continue to provide returns which are too correlated to equity markets (is it any surprise that in 2010, the worst month in terms of performance was May and the best September?) and this is not what investors want.  We have no idea what 2011 holds but we do believe our portfolio will deliver solid positive returns regardless.”

Michael DeJarnetteMichael DeJarnetteMichael DeJarnette, Co-Founder, NorthPoint Trading Partners

“I believe that in 2011 we will see a return of the mid-size hedge fund ($100 million - $800 million AUM range).  That is due to increased barriers to entry for the smallest start-ups and lack of alpha on the largest side.  I think that sized fund will have to focus more on compliance and risk.  They will have to leverage technology to do so.  I believe that that will be accomplished through the use of in-house technology and brand name service providers.  Both the buy-side and sell-side will be at risk of losing competitive advantage to peers that have more robust tech infrastructure.”

Basil WilliamsBasil WilliamsBasil Williams, CEO, Concordia Advisors

“In August, Michael Purves of BGC Financial coined the term ‘wolf market’ in a WSJ interview. I tend to agree with Michael’s assessment. The 2011 market, like a wolf, will react quickly and decisively. It will be wily. It will feed on weak prey. As bulls or bears are much bigger and less nimble, they are able to carry the herd. The wolf takes no prisoners. Such markets are environments in which nimble trading strategies like relative-value investing will prevail. Such investment styles recognize market, sector and security-specific overreaction and structure trades that profit from them, while also protecting against sustained adverse macro moves. Profiting by trading with a trend, a great strategy in bullish or bearish times, will be much more difficult in 2011. Alternatively, profiting by seizing upon market inefficiency and short-term overreaction will produce a more desirable return/risk profile.”

Looking Ahead to 2011: The Hedge Fund Industry Speaks

Part I
- Rory Hills, Hilltop Fund Management
- Michael DeJarnette, NorthPoint Trading Partners
- Basil Williams, Concordia Advisors

Part II
- Troy Buckner, NuWave Investment Management
- Jack McDonald, Conifer Group
- Piers Denne, Future Capital Partners

Part III
- Jeff Holland, Liongate Capital Management
- Jonathan Neill, FPP Asset Management
- Don Steinbrugge, Agecroft Partners

Part IV
- Graham Stock, Insparo Asset Management
- Sal Gilbertie, Teucrium Corn Fund
- Robert Jersey, GarWood Securities
- Amit Shabi, Bernheim Dreyfus & Co.

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