Walking into a conference knowing you are probably one of the poorest people there by at least several million dollars is a surreal feeling. But that’s how it goes for journalists who attend hedge fund industry events like the Bloomberg Hedge Funds Summit, held Tuesday at the Signature Theatre in New York.
Once you make your way past the snack bar — stocked with kale and beet chips, Naked juice, artisanal cookies and a make-your-own parfait station — you find yourself amid a swirl of pastel or bold patterned Hermés ties under navy pinstriped suits. You might even encounter a pair of opalescent rhinestoned stilettos (see below) on your way into the auditorium to hear some of the industry’s biggest names talk shop.
So what did they say?
The big takeaway from the Summit was that the hedge fund community isn’t exactly eager to enter into the mainstream and embrace the “average” investor.
“[Hedge funds] don’t want to take in large amounts of money in small tickets; they want to know their investors,” said Eric Siegel, global head of hedge fund research and management at Citi Private Pank. “A lot of managers don’t want to run that type of money.”
So-called “average” investors — which is to say someone who doesn’t qualify as high net worth, such as, well, a twentysomething 401(k) participant at a media company — are clamoring for more liquid alternative products broadly, and hedge funds specifically. Essentially, average investors want the ability to invest in hedge funds, but they don’t want to make the same long-term commitment that goes along with that type of investment. They want to be able to pull their money when they need cash or things go bad, which is something hedge funds can’t afford to allow, as they need a stable pool of cash to survive and would risk collapse if there were to be a run on their funds.
As such, hedge fund managers are reluctant to create products that fit the average investor’s criteria, even if they are willing to take “small ticket” investments.
“The vast majority of our approved funds do not have a more liquid product set and don’t seem to have any interest in that,” Siegel said. “A lot of hedge fund managers today are very scared of what happened to their businesses in 2008, with the fast money coming in, and if you allowed less affluent, less sophisticated investors into these funds, that would absolutely be fast money.”
A couple of panelists did support the idea of opening hedge funds up to the commoners, however.
“The world is our oyster! There will be a lot of opportunities to make money,” said Mitch Petrick, managing director and head of global market strategies at The Carlyle Group, which has about $32 billion in assets. He noted that in the U.S. there is about $19 trillion that sits in savings accounts and $5 trillion in defined contribution and IRAs each. He continued: “Those investors are underrepresented in the alternative space. In the financial crisis, a lot of those plans did not do very well. There is an opportunity in our space to create a product set for that group to outperform like an institutional investor. In that savings pool is an overreliance on cash, and most have no exposure to the tremendous growth in the emerging markets.”