The environment continue to be challenging for start-up hedge fund managers but it is improving. Hedge fund launches exceeded liquidations in Q1 2018 for the third consecutive quarter, as both launches and liquidations fell through early 2018. According to Hedge Fund Research, 158 funds launched in Q1 2018, down from 190 in Q4 2017 – the lowest quarterly new launch total since 153 funds were started in Q4 2016.
According to HFR, for new funds launched in Q1 2018, the average management fee was 1.19%, a decrease of 5 basis points from the prior quarter and a decline of 15 basis points over the calendar year 2017 launch average management fee of 1.34%.
New managers continue to be flexible regarding fees, often offering founders’ class.
Hedge fund performance remains lackluster. Year-to-date through the end of June, the HFRI weighted composite was up 0.81% compared with the S&P 500’s 2.7%. Lackluster returns remain a concern for hedge fund investors.
Yet, many investors continue to search out emerging managers for potentially higher returns than established managers tend to generate. Based on interviews with industry veterans including seeders, funds of funds, family offices, and attorneys, we’ve come up with a list of nine potential high quality managers following differentiated strategies.
All have been trading outside capital for less than three years and in one case, the manager is preparing to launch next quarter.
The founding managers have experienced pedigrees that include working at large hedge funds or banks. About half have received backing, seed capital or infrastructural support.
The strategies are niche and vary. Five take a concentrated approach while four have a strong systematic or quantitative component.
12 pages including table