Agecroft Partners' Top Hedge Fund Industry Trends for 2015

Jan 5 2015 | 9:11am ET

 
6. Founders' Share Fee Structure Becomes Mainstream For Small Hedge Fund Managers

A Founders' share class is a 25% to 50% discount on standard hedge fund fees that began  as a way to incent investors to invest day one in a new fund. Over the past couple years, its use has been greatly expanded to include a significant percentage of hedge funds under one hundred million in assets. This asset ceiling is increasingly being raised to two hundred million and beyond for investors willing to either allocate a large dollar amount or accept a longer lock up. This trend adds downward pressure on hedge fund industry fees that are also being squeezed by large institutional investors.
 
7. 40 Act Hedge Fund Marketplace Becoming Increasing More Competitive

The number of hedge fund 40 Act funds has ballooned over the past couple years which has made it increasing more difficult for new entrants or smaller managers to raise assets unless they are aligned with a strong distribution partner.
 
8.  AIFMD Significantly Reducing Hedge Fund Marketing Activity in Europe

US marketing activity in the Euro-Zone has declined significantly due to AIFMD and we do not expect it will increase until hedge funds can register across the Euro-zone with a single registration. Europe has historically accounted for approximately 25% of hedge fund asset flows to US based managers This legislation is hitting smaller managers disproportionally hard because they lack the resources to register in individual countries. In addition, European based investors tend to be more willing to invest in smaller managers due to their higher return potential. This legislation is also hurting European investors who are not seeing many of the top emerging managers.
 
9. Growth in Outsourced CIO

An increasing number of endowments and foundations are outsourcing the investment management of their funds to Outsourced Chief Investment Officer (OCIO) due to both the rising cost of staffing an investment office and poor returns from their portfolio. This is good news for the OCIO  industry that has seen a flood of new competitors over the past 5 years, however this will also lead to significant fee pressure due to the increased competition. This is a major change from the environment a few years ago where there was little fee pressure and investors often felt lucky to be accepted as clients.
 
10.  Social Media

The use of social media by hedge fund managers, investors and service providers continues to expand at an accelerating rate. Social media is being used for research, to build stronger relationships and help promote a firms’ brands in the market place. Some managers are also using it to promote their investment ideas in order to create a catalyst for a security. The most commonly used social media is LinkedIn, which is broadly used throughout the industry. In 2014, Twitter was used by many people in the industry for the first time and this is expected to increase in 2015. Finally, we are beginning to see some use in YouTube where organizations are creating videos that can be posted on websites, distributed through social media or emailed to a distribution group. Many new firms are being created to address this need including Hedge Fund Social Media, an organization Agecroft Partners helped establish.

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