“Subscription Gates”: Why some hedge funds (used to) turn their backs on new money
Feb 27th, 2009 | Filed under: Hedge Fund Industry Trends, Today's Post
We’ve heard a lot of about hedge fund “redemption gates”. But how about “subscription gates”?
Earlier this week, we told you about a new study comparing the performance effects of asset inflows into small hedge funds and large hedge funds. Researchers found that sudden dramatic inflows of assets can often overwhelm smaller funds – a finding they attributed to the fact that smaller funds often exploited smaller pricing anomalies that can easily be arbitraged away. They concluded that it is therefore in the best interests of managers to avoid such inflows.
This conclusion makes sense on the surface. After all, hedge fund managers keep the lights on with management fees, but come to work every day pursuing the dream of performance fees. They also tend to invest a sizable proportion of their net worth into their own fund. So it goes without saying that performance trumps asset gathering.
Or does it? A study first published a couple of years ago and recently updated suggests that despite the payoff from stellar performance, hedge fund managers may actually be more motivated by increasing the amount of assets in their fund. More…
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