‘Alpha Dogs’ and Asymmetric Returns – The Preqin Dossier
Preqin, a London-based research house that polls the hell out of asset managers and risk-takers, finds that smaller, newer hedge funds have higher yields than the broader industry.
Minuscule though they may be, incy-wincy hedge funds are dwarfing the returns of their bigger rivals. The industry as a whole, with about $3.2 trillion in assets under management (AUM), returned approximately 10.2% in the past twelve months. But rookie risk managers, who have been punting for less than three years, have made about 14.10% to date — a 200-plus basis points (bps) premium over their established rivals.
Amazingly, newbie funds — launched within one year or less and sitting on $300 million or so — generated 11.91% to date, thrashing their big shot peers by over 100 bps. The volatility of neophyte managers (expressed in standard deviation terms, or σ, — about 4.78% vs 3.98%), was ‘slightly greater’ (obvs!) over three- and five-year time horizons. But management fees, always exhorbitantly high, were roughly equivalent — 1.52% of assets plus 19.50% of profits.
Still, many investors are hesitant to invest in brand new funds, according to the number-crunchers over at Preqin. The researchers found that around 72% of those asked would be willing to add capital to smaller players, and only 32% would roll the dice with risk managers who have been in the game for less than three years.
The ‘alpha dog’ establishment, overflowing with dog-eat-dog fiduciaries of all styles, shapes, sizes and inception dates, seems to be elevating the new kids on the block over their gray-haired hedge fund peers. Volpoint, for instance, a kickass commodity advisor down in Dallas with around $6 mil AUM, returned over 100% this year. Smaller ‘quant funds’ are also crushing the competition with parabolic profits, or ‘alpha‘, in hedge fund parlance. That’s because nimbler players can operate more flexibly, adapt more quickly and exploit niches and anomalies with some degree of quietude. They are also not beholden to behemoth and bureaucratic institutions. But we all know money never sleeps and things can change in a nano sec when it comes to market behavior and making speculative bets.
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VIVISXN MEDIA – Finance + Economics