2011 The Year Of The Smaller Hedge Fund, Agecroft Says

Jan 5 2011 | 10:34am ET

Less competition from larger hedge funds, increased flows from institutional investors and a banner year for startups are poised to reap new billions for smaller hedge funds, according to a new report.

Agecroft Partners’ Donald Steinbrugge said his prediction is based on conversations with more than 300 hedge funds and 1,500 institutional investors last year.

Over the past two years, as hedge funds struggled to recover both performance and lost assets suffered in the financial crisis, many long-closed, brand-name hedge funds reopened for the first time in years to new investors. And investors grabbed the opportunity, directing most of their billions to the biggest hedge fund firms.

But those hedge funds have refilled their coffers and are more reticent about accepting new money. But institutional and other investors ready to jump back into the asset class with both feet mean major opportunities for smaller funds.

“The end result is less competition for assets from the largest well-known hedge funds as investors shift their focus away from investing in brand names towards managers capable of generating future alpha,” Steinbrugge said.

And there will be plenty of new places for them to put their money: Steinbrugge says this year will be “the best year for hedge fund launches since 2007.”

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