Dixon Boardman, a veteran hedge fund of fund manager, is a survivor. Having founded, Optima Fund Management in 1988, his firm now manages USD4 billion. Boardman – and Optima – have stood firm through a sustained period of challenges for the fund of funds business.
“2008 did shake up a lot of people. And on top of that, there was Madoff. We avoided that fiasco, but it did force quite a few people out of the industry,” Boardman (pictured) says. “We’ve been guided by two bedrock principles of avoiding unnecessary risk and investing with the best and brightest hedge fund managers in the business. It means we haven’t attended all the weddings but we have avoided the funerals.”
Boardman says: “The real financial crisis that investors face is to maintain their commitment to hedge funds. Despite the industry’s general underperformance relative to the S&P 500 over the past few year, equity valuations are now stretched. Investors need to stay the course and allocate to experienced hedge fund managers who have demonstrated a record of risk management. With the markets at these levels it is a smart thing to do.”
Boardman believes that there are big issues facing the hedge fund manager community. “The fund of funds role is changing and there has been tremendous growth in liquid alternatives such as UCITS and 40 Act Funds,” he says.
“Since the financial crisis, the large public pension funds in the US have left the fund of funds business to invest directly with hedge fund managers. As a result, the fund of funds industry has had the wind in its face and suffered deteriorating margins due to limited growth, shrinkage and increasing costs – and the performance for the past six years until this year has been lacklustre. The industry has shrunk. Funds of funds now represent 24 per cent of the total industry and it was at 33 per cent.”
Nevertheless, Optima hasn’t reduced its fees as Boardman believes that you get what you pay for – some of his funds run fees with just 1.5 per cent management charge and others run at 1 per cent management with a 5 per cent performance fee on top.
“Institutions that can do all the necessary due diligence and analysis of hedge fund managers on their own can invest directly. For a lot of other investors, though, they can benefit from our 27 year record of proven experience and judgment, ” says Boardman.
Boardman also believes that it is important to get back to the performance-oriented roots of the hedge fund industry.
“There will always be hedge funds that perform well whatever the market conditions,” Boardman says. “It’s finding them that’s the challenge.”
“The industry has grown so much” Boardman says. “27 years ago, there were 600 hedge funds and only 100 had more than USD100m. It’s now gigantic and you need to know your way around.”