By Niki Natarajan
In the beginning
there was Soros (& Steinhardt) and only a few knew their
number. It was those that thrived. A decade ago, investors that
took their first hedge fund steps are now de facto experts but
these days now that Soros has shut up shop and other brands
have marketing teams, a rolodex is of limited use.
It is this dynamic that cookie-cutter FoHFs are struggling
with as the industry continues to transform from commingled
child to individually customised teenager.
This 10th anniversary issue takes a look at the FoHF family
album to discover who is still here; who has passed away; who
is still growing; and who has found a way to continue for
While average hedge fund performance today can definitely be
described as lacklustre, the alpha-hunters are still out there
and still performing. To understand the secrets of longevity,
InvestHedge talked to the industry’s oldest
families (pages 28-30).
While the intricacies and nuances of the global FoHF
industry have changed year after year over the last decade
(pages 33-47) what is clear is that multi-manager investing
from the first days of LCH Investments, 42 years ago, is here
But as Rick Sopher, chairman of LCH Investments says, the
time has come to stop talking about (and using) hedge funds as
an asset class but as the active asset management tool that
they were always designed to be.
The rise of strategy-specific FoHFs from Banque
Privée and Permal, as well as the growth of customised
portfolios for the ever growing group of institutional
investors, are all about using hedge funds as a tool.
For the latter to become a credible alternative to
commingled FoHFs, GIPS compliance will have to become
mandatory. The aim is to stop the bespoke trouble-makers, with
no discernable track record, from tarnishing the industry in
the way that fad-driven investing did prior to the crisis.
The new decade is likely to have fewer new launches
– as track records and economies of scale will become
ever more important. While performance is still a key driver,
the five firms that have emerged to become The Stalwart Five
clearly have something else in their armoury too.
Like characters from an Enid Blyton novel, The Stalwart Five
– FoHFs that were the InvestHedge Billion Dollar
Club’s top 10 largest firms ten years ago and are
still in the top 10 largest today –have had lot of
adventures. Blackstone grew up from a little boy in shorts,
with powerful private equity parents, to a headstrong head boy
of a prestigious $37.2 billion institution. Grosvenor, the
shyer, less well connected cousin, takes the bat as sports
captain at its $24.5 billion academy.
Permal, adopted by Legg Mason after Haussmann was taken into
care, is now more adventurous than the other boys in the gang.
Eager to experiment with managed accounts, UCITS,
single-manager and longer lock-up funds, this cheeky chap seems
to win the teachers over to stay at the top of the class.
Quellos never really liked school and refused to talk to
anyone. But Seattle’s secretive investor knew that
if he accepted his new step parent, BlackRock Alternative
Advisors, he would grow into a handsome teenager, leaving
behind his mysterious and gawky past.
Like George in Blyton’s Famous Five, Lyxor is
the girl in the gang that wants to be a boy. Like all girls,
Lyxor developed managed accounts early and knew what grown up
investing was really about.
This new decade has the look and feel of a new and more
enlightened phase of hedge fund investing. Whatever format
investors chose for their hedge fund portfolios, they do need
to know that who they pick today needs to be around in the next
Sustainability of people, process and edge are topics that
will thus be covered next week at the InvestHedge Forum:
'Building a Sustainable Future’ at the British
Museum on 13-14 September.
When InvestHedge was first born, LCH’s Sopher
recalls that it was not universally popular. "Possibly because
some established players did not appreciate its intrusion into
their private arena." Today it is still the only publication
dedicated to the news, performance and analysis of the global
hedge fund investing arena.