According to TABB Group’s latest report, smaller hedge funds should be leaping for joy as investors redirect themselves, having been rejected by large funds. Some 20% of participants in the financial market analyst’s 2005 survey said they were no longer accepting new capital, and more than half of large funds have narrowed their targets to a very specific set of investors.
“This creates an opportunity for smaller funds to attract the investors that do not have access to the well-known and well-funded money managers, but want to allocate some of their money to hedge fund strategies,” says the report.
But small funds shouldn’t get carried away just yet. As the number of entrants to the market increases, so too does the number of funds liquidated – and we’re not talking about liquidations resulting from poor performance or fraud.
Not a day passes without forecasts of growing asset allocations to hedge funds. At the same time, though, some small funds are realizing that they just cannot attract enough capital to maintain viable businesses. Promises of capital preservation, risk-adjusted returns, and low volatility mean little these days, it seems. Only 6% of funds surveyed by TABB use capital preservation as a value proposition.