It is a big brand world
For alternative managers, the first half of 2023 was a trip into unchartered waters - rate rises, confused central bank messaging, misfiring economies and ongoing war pressures - it was challenging, tiring and full of nasty surprises.
We may only be halfway through the year, but managers have already needed a complete toolkit to perform!
So far, the hedge fund heroes of last year, the quant and macro funds, have made heavy work of it, with many reporting disappointing numbers. A belief - albeit briefly - that macro was back has proved wide of the mark. On the other side of the fence, the zeroes of 2022, particularly the equity and crypto managers, have had a pretty good year-to-date, primarily buoyed by the rebound in tech stocks and the crypto reversal.
In such an environment, with so much investor uncertainty, the hedge fund world has continued to see asset outflows, with the exception of multi-strategy funds. Ironically, this is a time when investors need as much diversification as possible, so the case for such exposures should be strong.
Brand strength has become critical to investor allocation, with big brands seeing the bulk of the flows. Brands provide a layer of comfort, with investors derisking themselves by going down the "nobody ever gets fired for buying IBM" route,
The best example is Blackstone, which has just broken through the $1 trillion asset marker, and yet, at the same time, the firm has been battling reputational issues over BREIT liquidity.
However, being a brand is not a guarantee of positive asset flows. Carlyle showed what not to do last year, given its inner turmoils, and now, even with a new high-profile CEO doing all the right things, it is proving hard work to turn things around. Similarly, Tiger Global has been finding fundraising more difficult, with recent good numbers still overshadowed by last year's annus horribilis.
Without a strong brand, a tangible presence and associated assets, it is a demanding fundraising environment and unlikely to change anytime soon. These ‘associated assets’ include new longer-term institutional offerings, with Blackstone and Apollo, among a number of big names, to be strengthening their businesses and links to the family office space.
2023 has, however, been more than just brand - it is also about offering the right strategy for the times, which today for hedge funds is multi-strategy and private equity/ hedge is private credit and secondaries.
This year we have seen activists at full throttle, with more than 100 in Europe alone. Elliott has been as busy as always, while Hindenburg Research has gone all out chasing whales, starting with Gautam Adani and then Carl Icahn.
Can we expect a change in the second half? Hopefully, there will be improvements, with an end to rate rises and possible glimmers of light, but the likelihood is more of the same. What is certain, the lion's share of the assets will continue to flow to the brands, but those funds that make a strong case for diversification with exciting ideas and high-quality teams are also in the frame to raise decent assets.