Infiniti Finds New Fund Managers Try Harder |
Date: Tuesday, June 17, 2008
Author: Jacob Bunge, Financial Correspondent, Hedgeworld.com
NEW YORK (HedgeWorld.com)—In a recent study Infiniti Capital found that emerging hedge fund managers outperformed their more established counterparts by as much as 4% annually. Using figures from the HedgeFund.Net database, Infiniti officials analyzed the performance of 8,035 hedge funds from the beginning of 1991 through the end of 2007, and found that no matter their asset size, new hedge fund managers turned in higher returns than established managers. Among funds with $300 million or less under management, managers in business for 36 months or less had a compound annual growth rate of 17.57%, compared to 13.97% for managers with longer track records. Similarly, Infiniti found that managers in the game for two years or less with $200 million or less under management had a compound annual growth rate of 18.45%, while established managers earned 14.2%. Those numbers came out to 19.65% and 14.8%, with emerging managers leading again, when Infiniti officials examined funds with less than $100 million and a 12-month track record. According to the report, the effect is most pronounced at the very beginning of managers' careers. Managers with less than $20 million in assets had a compound annual growth rate of 21.14% in their first three months of business, whereas those in business longer than three months had a compound annual growth rate of 15.58%. None of this should be surprising to those with an eye trained on the industry, according to Peter Urbani, co-chief investment officer at Infiniti and author of the report. "Hedge fund managers are usually drawn from the ranks of institutional prop(rietary) desk traders who are tired with the corporate bureaucracy or whom have hit upon a particularly good trading idea," he wrote in the report. While such managers are able to take full advantage of fresh investment ideas while the iron is hot, just as important is the fact that they typically hold significant equity stakes in their new funds, aligning their interests closely with clients willing to take a chance on an upstart manager. "It is principally this interest alignment with clients that makes hedge funds so attractive in general," Mr. Urbani wrote. He added that while emerging hedge fund managers face additional "business risk" associated with running a startup enterprise, such managers don't carry any more "investment or market risk" than their established counterparts. The key to addressing the former, he wrote, is due diligence—Infiniti breaks down its evaluations of emerging managers into qualitative, quantitative and legal and operational due diligence, from visiting the manager at his or her office to scrutinizing passports. Only after managers have been vetted in this way do they see an investment from Infiniti, according to the report. The firm operates by additional rules as well. Infiniti's risk monitor disallows investment with a manager who runs less than $20 million, or has less than six months of actual track record—i.e., not pro-forma performance. Infiniti's rules also limit the firm's allocations to 10% of any one manager's total assets under management. Mr. Urbani noted that there exists much support for the theory of emerging managers' outperformance. Previous studies from PerTrac Financial Solutions Previous HedgeWorld Story and VanthedgePoint Securities LLC Previous HedgeWorld Story have come to similar conclusions. Infiniti, an operator of funds of hedge funds and structured products, manages approximately $1 billion in total assets and has offices in London; Zürich, Switzerland; Hong Kong; and Christchurch, New Zealand. After reorganizing earlier this year, the firm announced in late May that Iain Hamilton, a portfolio manager of several Infiniti vehicles, would not depart his position as previously announced Previous HedgeWorld Story.
Reproduction in whole or in part without permission is prohibited.
