Third-party marketers – a select group who have long made their living sourcing alternatives managers and strategies and then recommending those managers and strategies to potential investors – certainly haven’t had the best of times of late.
Despite being among the most diligent in terms of due diligence, manager selection and representation, it’s been a tough sell convincing institutions, high-net-worth individuals, family offices and the like that hedge funds are still the way to go.
Never mind the more recent debate within the US Securities and Exchange Commission looking to outright ban 3PM firms.
According to a survey released this week by New York-based Carbon360, 3PMs may have finally turned the corner as investors are increasingly warming back up to the idea of parking money in alternatives – and using a 3PM to help.
While it’s still about strategy, it’s equally if not more about transparency and risk management, according to the survey, which included responses predominantly from 3PMs (68%) but also from capital introduction groups (20%) and institutional investors (8%).
The survey also showed that the hedge fund investor base is now overwhelmingly dominated by institutions, family offices and pension funds. What’s more, those investors have developed a taste for global strategies in addition to traditional long/short funds.
To be sure, while a large number of investors continue to wait on the sidelines, third-party marketers are focusing their efforts on sourcing capital from areas outside of the US. That capital, meanwhile, is looking for managers with proven track records, large assets under management and an infrastructure that allows for greater transparency.
And capital there will be, according to the survey – more than $4 billion by 2013 by the collective estimates (see chart below from report).
In an effort to gain those assets under management and in turn survivability, new and emerging managers are also increasingly being represented by 3PMs, as they can outsource their marketing/investor relations efforts to the 3PMs and focus on managing their assets.
But they’ll have to pay for the privilege. As you might expect, the newer the fund, the larger share of fees they will have to pay to their 3PM (see chart below created with data from the report).
So perhaps it is getting back to business as usual for the alternatives industry as a whole. At the end of the day, it’s not only about knowing the manager, the strategy and the risks, it’s also about knowing the investor, their parameters and expectations and what works best for their broader portfolio.
A tough gig for anyone at the best of times.