The Case for a Venture Partner Model

Sascha Klamp, CEO of CITE, reviews the shortcomings of the nascent fund manager distribution approaches and argues for a more widespread use of the holistic venture partner business model in asset management.

Initially, it took allocators some time to fully comprehend the implications of the market events and the impact it had and still has on the funds industry. But once the initial shock-and-awe moment settled, redemptions across the fund of hedge funds landscape accelerated. As a consequence, the number and size of funds of hedge funds (FoHF) are riding down an inverse S-Curve.

While the initial redemptions were sluggish and appeared to be a drop in the ocean, this trend has now accelerated as larger allocators adjusted their investment and operating models to focus on sourcing and building internal hedge fund investment capabilities. For the first time, many FoHF analysts were confronted with writing redemption tickets rather than filling in subscriptions documents.

The natural assumption was that single-manager hedge funds would suffer and follow the decline of their largest source of capital pre-2008. Far from it: after an initial phase of decline in assets under management, which was long overdue no doubt, hedge fund assets have now surpassed the pre-crisis levels (previous peak $1.95 trillion in June 2008 versus $1.97 trillion in November 2013, according to Eurekahedge, 2013).

EY ITEM Club releases Financial Services Outlook Summer 2013

The hedge fund industry is likely face some challenges ahead.

Ernst & Young released its Financial Services forecast Summer 2013. The report is a quick to read and relatively content light. However some key observations are being made that are interesting to note.

The asset management highlights are (Source: Ernst & Young):

  • UK share price will rise almost 15% this year, helping to increase equity asset under management (AuM) to GBP409bn
  • Bond AuM will drop to GBP133bn in 2017, from GBP136bn this year
  • 10% of UK equity funds are now index trackers rather than actively managed
  • Multi-asset funds will account for one-fourth of UK-focused assets by 2017

The report falls short to explain how the macro variables will unfold according to their forecast. Regrettably no mention is made on how the Fund of Funds and Hedge Fund industry will develop specifically. That is, are we likely to see a further consolidation among the Fund of Funds players and are the largetst Hedge Funds likely to get bigger? Equally, there is no suggestion how new and emerging fund managers will develop over the next few years and where the investor capital is likely to come from.