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The benefits of investing early in a hedge fund
Taking an 'early stage' approach when investing in a managed funds is an attractive proposition for institutional investors seeking a customised investment exposure.
While the traditional method of early stage management involves taking a stake in the fund manager, the preferred approach is to have an investor in the fund at an early stage, said HSBC Alternative Investments global head of portfolio management Faraz Sultan.
He said these types of fund managers do not generally have a large asset base and are trying to establish their track record by generating a strong performance.
Given the fact that HSBC generally invests in alternative funds with less than $300 million in assets, they also tend to be more nimble and flexible in volatile markets, Sultan added.
"That being said, we're looking for a fee discount for being an early bird investor. If you look at our portfolios that we've created, the average fee discount we've obtained on manager fees is about 50 per cent, and that's certainly one of the criteria for investing in these funds - along with (the funds) passing due diligence and research," he said.
In relation to European and US markets, Sultan said strategies involving trading have been producing strong returns, whereas fundamental or longer-term strategies in equity markets have found it difficult to perform in precarious markets.
As a result, institutional clients - particularly in Australia - are taking more of an advisory approach to investing and demanding more customised offerings as they look set to increase their overall allocation to hedge funds and alternatives, Sultan said.
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