Editor’s Letter - Issue 124

In this issue, we showcase the AIMA/GPP Emerging Manager Survey 2017, Alive and Kicking, which reveals that the climate for starting a hedge fund is far more constructive than is perceived in some quarters. The long-term trend of asset inflows into hedge funds has resumed this year after the brief hiatus seen in 2016. And the 2016 EY Global Hedge Fund and Investor Survey found investors allocating 14% of their hedge fund portfolios to “emerging” hedge funds, defined as those less than three years old.

Granted, regulation has increased costs, and MiFID may add yet more expense, but not to an insurmountable degree. Outsourcing and technology can mitigate the regulatory burden, in many cases. Claims that funds cannot survive with less than $200 or $300 million are too sweeping and general. The AIMA/GPP survey identified an average breakeven point of $86 million. This varies by strategy, with global macro - where median headcounts are higher - having the highest at $136 million while credit had the lowest at $76 million.

Headlines suggesting low launch activity are often making mountains out of molehills, by reading far too much into small fluctuations in numbers that should probably be viewed as spurious “noise” in a statistical sense. HFR tracked 712 new fund launches in the year ending in 1Q 2017 and by any standard this signifies a dynamic industry.