Reports of the death of the hedge fund industry have been greatly exaggerated, according to the authors of the first edition of the Citigroup Alternative Investments Journal. The lead article in the Journal explores the factors that industry experts believe are critical for hedge funds to be successful.
Authors of the article titled "Hedge Funds: Built to Last?" formulated four key conclusions about the industry. First, the article concluded that innovations by hedge funds will continue, creating opportunities for firms with sustainable advantages to generate attractive returns. Second, structural advantages such as economies of scale and scope will become increasingly important. Third, as more managers continue to enter the space, average returns will fall, but hedge funds with competitive advantages should continue to deliver returns at historically strong levels. And finally, investors need to become increasingly sophisticated and nuanced in order to identify promising hedge funds.
"To analyze the capabilities required to outperform, it is necessary to move away from treating a hedge fund as one might a financial security —represented solely by its historical returns —and evaluate a hedge fund as an innovation business," said Rui de Figueiredo, research leader for Citigroup Alternative Investments and one of the authors of the article.
The 66-page, bi-annual periodical includes seven white papers covering on trends, opportunities and issues in the alternative investment arena, as well as market overviews on private equity, hedge funds and real estate.
Citigroup Alternative Investments manages products across five asset classes, including private equity, hedge funds, real estate, structured products and managed futures. As of the end of the first quarter, CAI had approximately $39.3 billion of unleveraged assets under management.