Hedge fund managers and pedigree – who knows?

In the hedge fund industry, it’s not who you know, it’s not who you know. It is who knows you.

MPC Investors is a $ 3 billion hedge fund based in London. Last month they raised $ 900 million to launch a pan-European directional long / short fund. This happened while more than usual number of funds were losing assets or struggling to progress as much as they had during the first two quarters of 2007. To launch this fund, they closed two Asian-based hedge funds that had failed to achieve a critical mass of assets. under the management levels (aum) and they went looking for the best hedge fund talent they could find. “I wanted to be able to look our clients in the eye and say this is exceptional,” said Peter Harrison, currently CEO of MPC Investors. After hiring them, he has also said, “You have to give your portfolio managers the best chance of getting better results. That is lost in many firms where they are trying to do a bit of management but also spending their time on strategy or hitting your sales team, or the sales team is pushing them to launch a new product. Our sales team meets with clients so fund managers don’t have to. Our goal is fund performance, that’s what the only one that matters. “

This $ 900 million was raised for a fund that did not yet have a track record and was supporting a portfolio management team that did not even exist three months ago. MPC Investors did not have the option to buy around a three year track record and 20% + profit from the start.

I write about this because it communicates two details about how hedge funds are raising assets. The first is that assets are earned more on current relationships than on past performance. The investors you are approaching should be familiar with who you are, what you stand for, and what your competitive advantage is. The second is that the pedigree and positioning and history of a hedge fund behind its team can overcome almost any other asset collection barrier. Harrison came out to hire the best of the best and now has a structure that allows the portfolio management team to focus only on generating performance. Some would say this is a cover for attracting top talent who are not good at talking to investors, but I think the message that portfolio managers should focus on the market and not on sales meetings resonates with a lot of people and not it’s the status quo.

If you are a large institutional investor or a family office, you will see more hedge funds approaching you each quarter. How do any of the hedge funds stand out? I think the four ways are past relationships, team pedigree, competitive advantages gained through the investment process (could include manager experience, look at pedigree), and performance.

I list the performance at the end of the list above because it really is becoming a commodity. There are thousands of companies with great performance. It is a fact that if a hedge fund is putting a lot of resources into marketing, it is likely to perform very well. With the exception of a track record of more than 7 or 10 years, high yield alone does not excite institutional investors, they see it Monday through Friday.