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16 Feb 2010

Capital Introduction Trends Affecting the Hedge Fund Industry

HedgeCo News - New York based institutional investment research company, Carbon 360, conducted a survey of third party marketers as well as capital introductions groups titled “Capital Introduction Trends in 2010”, to investigate the most sought after strategies, sourcing trends and due diligence concerns while asking how the industry might evolve over the next five years.

The survey showed that the investor base is now dominated overwhelmingly by institutions, family offices, and pension funds. Investors have also developed a taste for Global strategies in addition to traditional long/short funds, the survey found.

While performance remains a primary concern, transparency and risk management have grown to become critical concerns for investors.

“As hedge funds go, so goes the capital introduction industry.” Evan Rapoport, CEO of HedgeCo Securities LLC, said. “In that mode of thought, transparency and risk management are the popular trends. “If we can work with regulators to legitimize the industry and overcome the scandalous actions of a select few, I am all for it. This will be a major theme ongoing.”

“I expect institutional investors to be more receptive to newer managers, fee structures to remain stable, and foreign investors to invest more in the US and vice versa.” Rapoport said, “Europe should lose market share to Asia, and new markets will open up as countries move from developing markets to developed markets. Proprietary trading and hedge funds owned by large US banks will most likely weaken or disappear under the current administration and, more importantly, current US economy sentiment, leading to opportunities for independent investment management companies. Overall, I expect 2010 to build on the strength of the latter half of 2009.”

“When reviewing this year’s survey, the downward trend in assets does appear to be slowing, with some firms actually reporting slight increases in capital from the Q3 2009 forward.” Brian Shapiro, President of Simplify LLC, a portfolio management company, said, “Our hopes are that this data shows that the flight of capital and negative return trends of the past 24 months are now coming to an end, and the funds can utilize the lessons learned during these difficult times to continue supporting the process of hedge fund evolution from, opaque black-box, to transparent and liquid financial products.”