Does anyone have any views on the future of hedge fund of funds industry?
Bonus points if anyone works at one, specifically focusing on the seed capital side
FOF fees on top of already high HF fees probably isn’t going to be a big hit this year while performance of HF’s is historically weak. like most things, FOF fees will probably come down unless they can prove that they have some sort of magical knack for finding alpha and good funds. A lot of HF’s use FOF money- it’s good for a growing fund b/c they need to raise capital to kind of get to a minimum survival sort of level (I’d argue that’s probably over $100mm+ to start) and a FOF normally can be a pretty big infusion source. However, if the relationship isn’t good b/t a HF and FOF and a FOF isn’t locked up, it can certainly a HF in a very tight spot if they have 1 or 2 bad months in a row and some FOF yanks $$ and leaves the HF either levered to the hills or having to sell/cover positions. you wonder if FOF’s will just become the mainstream’s way into investing in HF’s… lower minimums, diversify risk, blah blah blah… could see that packaged up to someone wanting to drop maybe 25k not 1mm as a minimum investment almost mutual fund way into buying stocks. still, those fees. all of those fees. i’d think if you had a hedge fund, you might try to look at your prime broker on the cap intro side for maybe more sticky money than FOF’s these days. so yeah, even though this is going to be a historically sucky year for hedge funds, some will fold, others will emerge, but i still think the industry hasn’t reached full maturity yet. FOF’s same- think they are going to have to find a way to really justify their fee structure but the idea of a FOF is a good one. we’re all about diversification of assets in this little CFA program, right? just my 2 cents
SECULAR UPTREND. 08 IS AN OUTLIER YEAR
nodes - any thoughts on the attractiveness of LP investing vs taking a GP stake (either equity stake or rev share, top line im assuming)
I meant more of the difference between standard Fund of Funds investments (wehre they are LP’s in the hedge fund) versus seed capital investing (either taking an equity stake in the fund or a revenue share) asking which you think is more attractive