Is there a fundamental change in the Hedge Fund business model, could this lead to “Hedge Funds 3.0”?
Dr Sassan Zaker, Head of Alternative Investments at Julius Baer Pension Fund gave an interesting presentation on how the hedge fund business model has evolved since pre-1998 at last years Hedge Funds World Zurich conference.
He stated that pre-1998 there was a small supply of hedge fund managers offering a large opportunity-set, whilst post 2008 there was a large supply, with a markedly different opportunity set. Whereas investors pre-1998 were predominantly high-net worth individuals with a high tolerance for risk, post 2008 a higher proportion of hedge fund clients were institutional or retail, and as such were demanding a greater level of transparency and more assurances.
In response, hedge funds have had to evolve from a business model based purely on the need to generate high yields, to one which produced uncorrelated returns, to a more tactical allocation with an active complement of traditional assets that provides investors with greater transparency and lower risk whilst still generating uncorrelated alpha returns.
But what does the future hold now?
Is it possible for hedge funds to continue delivering uncorrelated alpha returns whilst also mitigating against risk in this current climate?
Or will the hedge fund business model have to evolve again? And if so what will it look like in 5, 10 and 20 years time?
Let us know what you think…