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Mid-sized Hedge Funds Attract Most Money, Says Barclays Capital

by Leroy Baker,, New York

16 December 2009

Barclays Capital has published "Raising the Game," a report on the state of the hedge fund industry after the first nine months of 2009, released by the firm’s Prime Services division.

The Report, prepared after interviewing hedge fund managers with funds managed together totaling USD387bn – approximately one third of the industry – found that hedge funds across the globe now seek to differentiate themselves more clearly in light of the industry-reshaping turmoil of the past 18 months.

Managers surveyed for "Raising the Game" reported that, although their Assets under Management (AUM) are down an average of 32% from peak levels, there was a positive outlook for fund-raising. Overall, the hedge fund industry had seen approximately USD150bn of inflows in the first nine months of the year.

Managers of mid-sized and large funds (i.e. more than USD5bn of AUM) witnessed lower outflows than smaller funds (i.e. less than USD5bn of AUM). Managers of mid-sized funds (i.e. those with USD5-10bn of AUM) reported that year-to-date inflows have outpaced outflows, resulting in net positive flows of approximately 5% in AUM.

Andrea Gentilini, Head of Strategic Consulting in Barclays Capital's Prime Services division and author of the report, announced that:

“Raising the Game has shown that the dramatic changes in the hedge fund landscape caused by the market dislocations have forced managers to be more strategic in their asset-raising practices and brand management."

"Managers can no longer let returns sell themselves – today’s investors want more communication, more due diligence and more transparency. Funds that focus on this have clearly been recognized by investors.”

Hedge fund managers were now more strategic in their asset-raising strategies, according to the report, with surveyed managers showing a clear trend in building their marketing and investor relations teams and increasing their investor communications.

While larger funds had the largest marketing and IR teams, the biggest planned increase was by funds with less than USD5bn of AUM, who were looking to increase headcount in their asset-raising teams by an average of 35% to 40% as they sought to recapture funds redeemed in the market dislocation.

The surveyed hedge fund managers cited the closing of new investor leads as the most significant change in the asset-raising process. While genuine hedge fund investors were still easily identifiable, managers reported a heightened need for dedicated relationship building with investors and more due diligence before any commitment of new funds. Sales cycles approximately doubled in length, with potential for this to increase further.

Reflecting this trend, the most sought-after skill for managers was deep capital markets experience which enabled new marketing or investor relations employees to articulate and differentiate the fund’s strategy in the same way as a portfolio manager.

Conversely, a traditional contact list was less important today than historically; managers now instead sought individuals with strong project management skills who could manage multiple leads and follow through to secure assets.

"Raising the Game" found that institutional investors still favored larger hedge funds, with over 40% of allocation to funds with more than USD10bn of AUM coming from institutional investors; funds of hedge funds dominated the investor base for funds with less than USD1bn of AUM.

North American investors continued to dominate the investor base, followed by European investors; geographical diversification outside of North America improved significantly above USD10bn of AUM, a reflection of the fact that these funds generally maintained multiple distribution offices.

Barclays Capital’s previous hedge fund report, "Picking up the Pieces," was released in June 2009.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at and a description of the report can be seen at

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