Over the last year, multiple studies have suggested that fewer plan sponsors are targeting hedge fund investments, with some citing performance, fees and risk as potential issues. Indeed, performance has been off: The Dow Jones Credit Suisse Hedge Fund Index returned -2.52% last year. However, as SEI’s Head of European Business Development Philip Masterson recently pointed out, performance has been all over the map across multiple products since the crisis. In some cases, some of the worst performers during the crisis are up dramatically. Fund sponsors have noticed: iiSEARCHES data suggest an uptick in hedge fund assignments in the U.S. and the U.K. in Q4 2011, and more assignments completed in 2011 than in the previous two years.*
There are tenuous signs that the trend will continue. Investment consultants for U.S. foundations & endowments are predicting an increase in hedge fund mandates in 2012. In fact 10% of all fund sponsors surveyed by MMI/iiSEARCHES in December said they would invest in hedge funds in Q1, with that number rising to 12% in Q2.
To capture those mandates, however, hedge funds might have to do some work to regain fund sponsors’ trust. The consultants interviewed by Foundation Endowment Intelligence suggest that most searches will be coming from funds looking to switch managers, rather than those looking to bolster their hedge fund roster. To keep clients – and work around the issue of poor returns in their pitch books – managers might need to up their communications game.
Masterson suggests managers focus their presentations on the specifics of how they derive value, while Greenwich Associates’ Rodger Smith stresses that investment risk management process must be addressed. Greenwich and SEI’s survey found that the top three goals for investors in hedge funds are accessing non-correlated strategies, diversification and lowering volatility—matters that too often don’t get addressed in presentations. Says Masterson, “There is significant opportunity for managers to clearly articulate their value proposition and distinguish themselves from competition.”
Another way to distinguish yourself from the competition? Follow best practices for responding to RFPs and think through your client presentation strategy BEFORE you go. Check out these simple but important institutional RFP preparation and execution tips from Graystone Consulting’s William Craig Dobbs and Patrick Schussman, gathered by our sister publication MMI from the recent Investment Management Consultants Association conference.
*iiSEARCHES Quarterly Summary Report Q4 2011. Please visit www.iisearches.com/analytics for more information (login required, or take a free trial).