Early stage managers are better positioned to benefit from current market conditions, according to Jeroen Tielman, chief executive and founder of IMQubator, a multi-strategy hedge fund incubation platform.
Citing a new report from PerTrac, Impact of Size and Age on Hedge Fund Performance: 1996 – 2011, Tielman (pictured) says small funds with assets of less than USD100m have outperformed large funds (those with assets of over USD500m) in 13 out of the last 16 years.
In addition, young funds (those started within the previous two years) had cumulative returns of 827 per cent since 1996, well beyond the 350 per cent posted by funds in operation for more than four years.
Alluding to emerging managers as “speedboats” and larger funds as “supertankers”, Tielman says: “It’s clear that speedboats are better equipped to explore and navigate the unknown, uncharted waters that make up the ‘new normal’ of the current political and economic environment. Supertankers need a longer time to test the waters and change course, while they need to be prudent to stay in deep waters only. The present economic climate favours the quick and nimble and might punish the large, slow and cumbersome.”
Tielman adds that the “new normal” makes it imperative for institutional investors to shake off their torpor and make allocations to more nimble funds with multiple return drivers and better transparency and governance. Emerging managers deserve to be included by institutional investors in the core of their hedge fund exposure, Tielman says.
A further advantage to investors in early stage funds is the unique moment of alignment and the diversification that younger managers offer to a portfolio, within the safety frame provided by an all-round and partner type of investment manager, such as IMQ.