Worth Venture Partners, an emerging manager hedge fund platform headquartered in Manhattan, has released a new paper titled "Accessing Emerging Hedge Fund Returns – Seeking Return Over Size" as part of a series of commentaries, Worthy Insights.
Investors are considering greater investment in emerging hedge fund managers in reaction to the recent underperformance of many blue-chip hedge funds versus historical returns. Increasing emerging manager allocations, notably from institutional investors, originate from a desire to source sustainable alpha. This paper shines a light on current options for investors wishing to execute in this fertile part of the hedge fund universe.
Abby Flamholz (pictured), Partner and Co-Founder of Worth, says: "Academic research, supported by a number of studies, reinforces the expected premium of emerging hedge fund manager investing." The paper documents emerging manager outperformance of 1.7-2.2 per cent per year, over various time horizons and particularly during periods of financial stress.
Flamholz adds: "In order to efficiently capture the return premium, closer monitoring is often warranted. External oversight when investing in smaller managers can add an elevated level of risk management. Recent innovation in the methods of monitoring has resulted in cost efficient solutions, providing comfort to investors who are often concerned with an emerging manager's smaller operational infrastructure."
The paper analyses the investment solutions typically utilised to efficiently invest in a portfolio of emerging hedge fund managers. It provides a direct comparison of alignment, fees and liquidity among other measures, for fund of funds, seeders and separately managed account platforms.
"Technology and innovation has propelled customised emerging manager hedge fund solutions that address a number of investors' top concerns in the manager selection process," says David Wertentheil, Partner and Co-Founder of Worth. "Emerging manager solutions range from managed accounts, designed to meet highly specific objectives and requirements, to more turnkey commingled solutions that provide access to portfolios of talented investment managers. We have seen the emergence of efficient, dedicated emerging manager platforms, fund of funds, seeders and consultants working to fill this need each with its own strengths and weaknesses. With the right partner, larger allocators can obtain tailored exposure to a group of smaller managers that are suitable to their specific investment objectives."
