Chicago, IL (PRWEB) April 22, 2008 — Hedge Fund Launch.com sees a difficult environment for start up and emerging hedge funds over the next several months. Fall out from the U.S. credit crisis, losses from “blue chip” hedge funds and a slowing economy have caused many allocations to hedge funds to cease. Hedge Fund Launch.com offers some insights to hedge fund managers trying to raise capital in this environment.
Hedge Fund Launch.com Core News
Industry performance: Returns have not been great so far in 2008 and many believe this may continue until the U.S. credit crisis and economic landscape improve. This is causing a lot of previously earmarked hedge fund allocations to remain on the sidelines.
Increased risk aversion: As many hedge fund investors are licking their wounds from losses incurred by established “blue chip” hedge funds, the thought of going out on the risk spectrum in support of a start up situation is not very appetizing at present.
Increased competition: As Bear Stearns and many of the other bulge bracket institutions eliminate their sub prime desks and shrink their investment banking head count, Hedge Fund Launch.com finding a lot of the newly unemployed looking to start hedge funds. Furthermore, many shuttered hedge funds are re-inventing themselves and moving back into the start up category.
Evaporation of the free lunch: Even the best and the brightest of the hedge fund industry are grinding it out harder than ever right now to earn favorable returns. Increased volatility across global asset classes has begun to take its toll on the long-only buy and holders. Furthermore, the once consistent and non-correlated returns offered by “liquidity arbitrage” strategies, such as ABL and structured credit, are in a temporary holding pattern.
It is imperative for start up hedge funds currently braving this environment to consider a few of key issues:
* Differentiation: There are a lot of hedge funds doing the same thing. How is your hedge fund different? What is your edge? Why are you better than the next manager?
*Concessions: At this point in time, investors have the upper hand. Be willing to negotiate terms at rates less favorable than you may have been able to get 24 months ago. Expect to give equity, fee concessions, special liquidity terms, capacity rights, etc.
*Patience: It may be frustrating waiting for the tide to turn, but if you have conviction, experience, and a truly differentiated investment thesis as well as a business plan then the money will come.
Quotes attributable to Jeff Kuchta, managing member, Hedge Fund Launch.com:
“The good news for start up hedge fund managers is that the economy and the hedge fund industry are cyclical, said Jeff Kuchta, managing member, Hedge Fund Launch, LLC. “We’ve been through similar periods before, and without a doubt markets will normalize and investors will eventually return looking for the non-correlated returns offered by hedge funds.”
“Furthermore risk appetites will re-surface as investors become bored with the risk-free rate of return, and the search for new and emerging hedge fund talent will move forward,” continued Kuchta. “The fact that even the “blue chip” hedge funds are no longer immune from problems will also steer more capital towards new and emerging hedge funds as the risk-reward barometer continues to shift in favor of the latter.”
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