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Institutional Investors & Hedge Funds | Research

Institutional Investors

Institutional Investors & Hedge Funds

These are great times for institutional investors to be completing due diligence on hedge funds, especially those which are between $300M and $1B and are going through the process of being "institutionalized." In times like these seams burst, trading algorithms are tested, sales professionals get discouraged and some hedge fund managers throw in the towel altogether. In a bull market it is sometimes hard to know how sound the business of a hedge fund is, or how long the fund's traders or sales professionals might stick around if the market starts to go south. Now is that window of time when it makes more sense than ever to complete on-site visits and thorough research on the top hedge funds which Investment Consultants and family offices are constantly monitoring.

Here's a short article on the state of industry for some hedge fund managers:

Only 10 months ago, Remy Trafelet was so flush that he treated about 100 employees at his hedge fund to a getaway in Venice. He and his crew spent a long, luxurious weekend at the five-star Hotel Bauer, which has Murano glass chandeliers, private gondoliers and a splendid view of a 17th-century basilica.

But now, a bit like Venice, Mr. Trafelet’s hedge fund seems to be sinking. His flagship fund has fallen about 26 percent this year, and Mr. Trafelet is struggling to hold on to anxious employees, as well as some investors.

Perhaps the most remarkable thing about Mr. Trafelet is that he is not so remarkable at all. Thousands of hedge fund managers like him — mostly young, mostly male and virtually all unknown outside financial circles — confront a sober reality: for now, the days of easy money are over.

The economics of the hedge fund industry, so lucrative on the way up, are trying even the most seasoned managers on the way down. Hotshots who amassed millions or even billions of dollars from deep-pocketed investors are struggling to persuade those backers to stick with them. For the $2 trillion hedge fund industry, a long-feared shakeout is at hand. Some analysts say one out of every 10 funds could fold.

Mr. Trafelet, who is 38 and first made his name managing money at the mutual fund giant Fidelity, insists his Trafelet & Company will be one of the survivors. He has been through rough patches before and says he is not about to give up now.

“There is an easy way out, but I’m not the one who is going to take it,” Mr. Trafelet said in an investor call on Thursday. “I feel an absolute personal and moral obligation to work as hard as possible especially through a difficult period.” Read more...

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