Small US hedge funds fail to reach orbit, fall back to Earth.
Apr 30th, 2008 | Filed under: Hedge Fund Industry TrendsAfter all the negative press about hedge funds over the past few months, one can be excused for believing that every other hedge fund is blowing up. In fact, a quick study released yesterday by hedge fund database HFN, said that April saw a spike in “funds being removed from the live database”. But before you conclude that this is the result of some high profile hedge fund blow-ups, have a look at the details.
Apparently, large hedge funds – the kind that get all the media attention when they perform poorly or have to suspend redemptions – are actually shutting down less frequently than the average fund. HFN reports that teeny-weeny funds with less than US$15 million of assets had an attrition rate in Q1 that was more than twice as high as their proportion of all funds in the HFN database. Tough times for the small fry? Possibly. But HFN doesn’t say whether this level of turnover is actually out of the ordinary. Assets of $15 million translate into $300,000 in management fees - barely enough to keep one or two people and a small office afloat. So, as with small restaurants, high attrition may simply be par for the course.
Does this portend doom for the industry? Probably note. It simply shows that it’s getting harder and harder to reach the “critical velocity” required to put a new hedge fund into orbit. It’s as much an asset raising issue as it is an investment performance issue (although the two are obviously related). Starting a hedge fund is often viewed as a route to easy riches. However, many start-up managers soon realize they’d rather make more and work less back at the prop desk.
To continue reading this article please login (at the right) or click here to learn more about accessing our archives.
[...] High attrition is par for the course for small hedge funds. (All About Alpha) [...]
But if these small funds of $15m make 20% return for clients that’s an extra 4750k,if they take 25% of that profit.Hardly small income,because if you ahve fund of $15m,just how many staff do you need and why need a spacious office.
An extra $750k,not 4750k.
Nice Article