‘Don’t fall in love’ – was one of the key messages from panelists on a session called ‘Over 100 years investing in hedge funds – what we can learn for the future?’, held at the 2018 Cayman Alternative Investment Summit, which was chaired by Peter Fletcher, managing director, PHF Capital.
Fletcher started by asking the panelists to share key lessons they had learned over the years. “One thing I have learned is ‘don’t fall in love’ – don’t allow a manager an extended period of poor performance because you believe they will turn it around or it is tough to fire them,” said Joel Katzman, president, Katzman Advisors.
He added: “And don’t always think you have to hire the great managers. That is important. Often, the good ones can also do a great job and they tend to come with a lot less baggage.”
Alain DeCoster, managing partner, ABS Investment Management, said his main advice was to understand that the hedge fund industry was all about people. “You need to understand the people you meet and what makes them tick as they set the culture, hire the talent, and manage the portfolio. The alignment with people may change over time so you need to pick up on it when that happens and change things if needed. You need to ensure there is no disconnect emerging,” he said.
Kathryn Creselius, vice president, investments, and CIO (retired), Johns Hopkins University, added that it is important to consider what the function of hedge funds is or should be within a wider portfolio. She said they that though hedge funds are not an asset class, they are often treated in that way in terms of allocations.
“You need to have a clear understanding of how hedge funds fit into your portfolio and your risk-return framework,” she said. “Every option must compete against other possibilities so you need to understand exactly how that fits into your long-term portfolio plan.”
Creselius added that she also agreed on not getting too emotionally attached to certain managers. “You need to avoid emotional attachment but that can be hard when you are dealing with people you have known for a long time and respect,” she said.
Elise Rosenberg, director, Capital Solutions, Barclays, described some of the results of a survey completed by the bank recently. She noted that after a sharp decline in new launches, there was some evidence of more new launches coming through – but size is now an issue. “New funds need to be looking at scale very quickly – generally speaking they need to be getting to the $100 million within two years. Two guys and a Bloomberg is not enough now,” she said.
2018 Cayman Alternative Investment Summit, Peter Fletcher, PHF Capital, Hedge funds, Cayman Isands