By now all of us in the alternative industry have read multiple articles on CalPers’ exiting of Hedge Funds. I feel, as in many other examples before, this has been taken up, made a “sensation” to drive unique visitors to media sites without very many writers thinking twice about what this really means. In my eyes it’s great for the Hedge Fund industry that another “elephant” leaves the room. It can only mean things get better from here…
- The often cited fact that a large guy like Calpers cannot beat the HF index (which is just an average, remember) has many reasons, many of them routing back to the sheer size of the institution.
- Pension funds in my view due to their size, their ultimate investors and political governance are by definition poor investors in high conviction investments. Their manager picking ability is enormously impaired on day 1, regardless of their resources and/or teams etc.
- To suggest people should go long-only and or in illiquid things like PE/Real Estate, as some commentators have done, is highly dangerous and produces the next valley of tears
- But I agree in the other lesson…watch out who you pay for what…aa very limited number of managers are worth the pay in the long run, especially if you have no right to claim the pay back if the promised result has not been delivered. In fact an outrageous business model…
- This will open up a big chance for nimble, skilled investors with the right tools to reap the opportunity that is left behind by the elephants
- This new opportunity is not in front of you…and certainly doesn’t already manage billions of dollars…its emerging/mid sized managers who are still hungry, are of a new generation, highly innovative and very specialized
- To find them, assess them, invest in them we need the market to work way more efficiently, cut the bullshit out and get the smart investors back into the driving seat
- Platforms like the one we are creating (www.fundbase.com) will be leading this change.
It will be interesting to see how the market will look like in 5 years. This could finally be the time when things change radically, the timing looks about right…we bet on it!