2010 was a transformative year for the hedge fund industry and served as a strong reminder that managing money is not the same ]as running a business. The significant number of small, mid-size and ]large fund closures already in 2011 provides continuing evidence of ]the material, multifaceted challenges facing operators of hedge fund ]businesses.
Managers who understand the distinction between managing money and running a business and who execute both effectively are best positioned to maintain a sustainable and prosperous business – to achieve not only investment alpha, but also enterprise alpha.The white paper entitled "The Business of Running a Hedge Fund" published through out the internet this week examines the hedge fund business model and is based ]on our observations and numerous conversations with hedge fund ]managers, investors and industry experts. Our goal is to share the ]best practices we have witnessed among "green zone" hedge funds ]that are well positioned for sustainability across a variety of economic ]and market conditions.
Most hedge fund managers would agree: given the broader market environment and the specific challenges facing the industry, 2010 was a difficult year. In fact, the past few years have tested the industry in unprecedented ways. The industry, by and large, has passed that test, and there are a wealth of excellent funds operating today that are poised for growth. Managers are more focused than ever on designing their business models to thrive under a wide range of market scenarios. While performance and AUM growth are still important levers in the hedge fund business model, they are no longer foregone conclusions and are not wholly controlled by the hedge fund manager. Expenses are the only lever the manager can reliably control.
While there is no one-size-fits-all business model for hedge funds, there are several consistent ele- ments and best practices we have witnessed among well-managed funds with staying power. The hedge fund industry has literally reshaped the investment landscape for talented managers and for qualified investors – not only because hedge funds provide greater flexibility in investment de- cisions, but also because of the business model itself, which aligns managers and investors and provides excellent incentives for strong perfor- mance. In the post-crisis environment, managers are increasingly focused not only on their invest- ment performance, but also on their business models. Whereas pre-crisis the top hedge funds were dedicated to performance alpha, post-crisis the top funds also seek enterprise alpha.
See www.merlinsecurities.com for full white paper
Managers who understand the distinction between managing money and running a business and who execute both effectively are best positioned to maintain a sustainable and prosperous business – to achieve not only investment alpha, but also enterprise alpha.The white paper entitled "The Business of Running a Hedge Fund" published through out the internet this week examines the hedge fund business model and is based ]on our observations and numerous conversations with hedge fund ]managers, investors and industry experts. Our goal is to share the ]best practices we have witnessed among "green zone" hedge funds ]that are well positioned for sustainability across a variety of economic ]and market conditions.
Most hedge fund managers would agree: given the broader market environment and the specific challenges facing the industry, 2010 was a difficult year. In fact, the past few years have tested the industry in unprecedented ways. The industry, by and large, has passed that test, and there are a wealth of excellent funds operating today that are poised for growth. Managers are more focused than ever on designing their business models to thrive under a wide range of market scenarios. While performance and AUM growth are still important levers in the hedge fund business model, they are no longer foregone conclusions and are not wholly controlled by the hedge fund manager. Expenses are the only lever the manager can reliably control.
While there is no one-size-fits-all business model for hedge funds, there are several consistent ele- ments and best practices we have witnessed among well-managed funds with staying power. The hedge fund industry has literally reshaped the investment landscape for talented managers and for qualified investors – not only because hedge funds provide greater flexibility in investment de- cisions, but also because of the business model itself, which aligns managers and investors and provides excellent incentives for strong perfor- mance. In the post-crisis environment, managers are increasingly focused not only on their invest- ment performance, but also on their business models. Whereas pre-crisis the top hedge funds were dedicated to performance alpha, post-crisis the top funds also seek enterprise alpha.
See www.merlinsecurities.com for full white paper
