Conference Presentation, Panel, Fireside Chat
The Evolution of Hedge Fund Management
- Dawn Fitzpatrick predicts that the "2 in 20" performance fee model is obsolete, forecasting a shift toward slower fee crystallization and management fees that decline as assets under management increase.
- Ricky Sandler anticipates a fee structure evolution toward alpha-based and absolute return models, where persistent differentiated returns could command fees of 30%, alongside a prediction that high alpha generators may be required to pay higher fees in the future.
- Andrew Felstein and Ricky Sandler both project that fee arrangements will eventually allow performance fees to offset management fees over a five-year horizon.
- Dawn Fitzpatrick expects that due to the market being in a late stage, excess returns will be lower in absolute terms, even if relative performance improves.
- Andrew Felstein forecasts that hedge fund returns will improve over a three- to five-year period as the industry emerges from a difficult cycle.
- Dimitri Baljasny states that long-bias strategies which performed well over the last decade are unlikely to repeat such relative performance in the next ten years.
- Ricky Sandler predicts that the cost of technology and data will drive a wave of industry consolidation, noting it is not economically viable for small funds to sustain diversified teams and infrastructure.
- Andrew Felstein estimates that to thrive for the next 10 years, a fund must be capable of covering a $100 million expense base.
- Andrew Felstein warns that large firms face a narrowing field and that flows are shifting toward niche hedge funds managing between $250 million and $500 million.
- Ricky Sandler asserts that the current industry construct has led to mediocre returns at high fees due to a focus on downside protection and asset gathering rather than return generation.
- Don Fitzpatrick observes that capital is fluctuating within a cyclical element where easy money has bid up asset prices, though this dynamic may be changing.
- Ricky Sandler expresses concern that an investor focus on return of capital rather than return on capital has negatively impacted industry performance expectations.
- Andrew Felstein predicts that if firms do not constantly remain at the front tier, they risk becoming providers of commoditized returns.
- Dimitri Baljasny forecasts that non-commoditized returns will eventually commoditize as capital flows into them and labor moves between institutions.
- Ricky Sandler believes the bull market has caused shorting individual stocks to become a "lost art" by driving participants out of the business.
- Andrew Felstein notes a tension between scaling and either complacency or losing an innovative edge, predicting that systematic investing in credit markets will follow a slower or different trajectory than systematic equities in the next few years.
- Ricky Sandler expects it will take 18 months to two years to fully realize growth in their data science and short-side teams.
- Dawn Fitzpatrick predicts that strategies successful during the last nine years of a bull market are unlikely to work in the same way going forward.
- Dimitri Baljasny forecasts that the only persistent alpha will come from adaptation, necessitating constant changes to cultures, institutions, and technology.
- Andrew Felstein states that investors will increasingly seek non-commoditized, distinctive returns as the search for them continues.
- Dawn Fitzpatrick believes that as markets become more challenging, the skills of active managers will increasingly come into favor.
- Andrew Felstein asserts that industry structures used to align with investors will inevitably change as the sector evolves.
- Don Fitzpatrick indicates confidence that capital will be available for co-investment in client capabilities for multiple years, specifically five to seven years in some cases.