ECI’s Post

Some multistrategy hedge funds have found a way to charge more than half of the profits they generate risking clients' cash as fees to pay themselves and run their operations. And people complained about 2+20! Story with Liza Tetley. *Please follow me on X https://lnkd.in/dKsFZUR5 to get hedge fund updates

Interesting article here from Nishant Kumar (as always) but I don’t agree with everything here and I think the reality of the multi-manager (MM) passthrough fee structure is more nuanced that want’s being described. Firstly, MM hedge funds are extremely high fee structure vehicles. My knowledge might be a bit the the big pod shops will be charging 3-5% of capital to limited partners (LPs) to cover all research expenses, PM payouts etc. The LP’s however get net returns and so far those have been been excellent in a lot of cases, particularly at my old shop Citadel for example. Let’s say you’re an LP writing a $1bn dollar check to a MM hedge fund which has a 4% passthrough fee. You as the LP will pay the 4% (or $40m) passthrough fees on your initial capital outlay but the MM fund will be aiming to deliver say 3-5% return on GMV or 15-25% return on equity after taking into account the 5x leverage. Assuming the fund delivers on the low end of 3% return on GMV, that equates to $150m in Gross PnL and $110, net PnL after taking off the $40m in passthrough fees. That means the LP is eating net returns of $110m or 11% on the $1bn they initially invested. This 11% isn’t bad at all especially considering what an MM wrapper actually offers LPs which sometimes I feel is forgotten in discussions around high fee structures. 1) LPs get a pure alpha signal, without any beta, thematic, factors which is increasingly easy to replicate using ETFs at virtually no cost today. A LOT of active managers can probably easily be “factorized” whether they know it or not. For example, ETFs can easily replicate a manager’s whose edge is Global Small Cap Quality Companies or US Large Cap Momentum Companies etc. 2) LPs get a true risk diversifier as MM strategies typically offer uncorrelated risks with other strategies. 3) LPs can typically get exposure to multiple strategies and asset classes all under one roof with a MM hedge fund. 4) Generally speaking, MM hedge funds have demonstrated a fairly solid track record of offering LPs downside protection in volatile markets. Yes, high-fees need to be justified. That is not unique to MM hedge funds but rather any active manager that claims they can beat Mr. Market. But a lot (not all) of MM hedge funds can easily and credibly justify those and I think LPs are not stupid enough to let that alone impact their allocation decisions.

With seven Hedge Funds Club events ahead of us for 2024 as part of our annual sponsorship, we can't wait to mix it up with industry friends once again. Singapore Hedge Funds Club this week and then the inaugural Melbourne event next week! Financial Recovery Technologies Emma-Jayne Page Michael Lange Freda Siafrakas Lachlan Slade Robert Rynd #hedgefunds #assetmanagement #assetowners #securitieslitigation #classactions #antitrust

Akshat Shrivastava is starting his own hedge fund! So, here's what a hedge fund is in simple terms! Follow Dhruv Bhatia! #hedgefund

Multi-strategy hedge fund managers have amassed substantial assets under management in the current decade and have become known as “pod” shops. Learn more with CAIS https://lnkd.in/eZbhJ5CY #hedgefunds #wealthmanagement #financialadvisors

It's Important to be able to innovate and adapt to market changes

Citadel dialed back its index rebalance strategy, joining a string of hedge fund peers who are curtailing what once used to be one of the most reliable trades. *Please follow me on X https://lnkd.in/dKsFZUR5 to get hedge fund updates

Discover the four areas to focus on when choosing an operational partner, to help you find the support needed to launch a new hedge fund. https://ow.ly/xQ9m30sz75n

To share an insight into the Pure Hedge Fund, who it is appropriate for, and factors to consider when looking to include the fund in clients’ portfolios, we were joined by Alan Yates of Peregrine Capital👉 https://lnkd.in/e56mBaFi

Losing money is one way to blow up your hedge fund. Here's another option. Must read by Hema Parmar *Please follow me on X https://lnkd.in/dKsFZUR5 to get hedge fund updates