Longer duration is where the money lies

It is interesting to see Marshall Wace, possibly the most liquid of equity focused hedge fund managers, locking-up capital for longer. This shows that large funds are once more in the ascendancy and can again lay down the rules.

While hedge fund managers’ preference has always been to lock-in capital for longer, it is not always possible. It also goes against the tide of UCITS funds and investor requirements post 2008.

Hedge fund managers have always been jealous of the PE crowd who are sitting on their investments for seven plus years, partly because they have locked-in fees but also the deeper waters that they can invest in. The more liquid funds certainly didn’t enjoy being used as ATMs in 2008.

Managing liquidity - be it daily, weekly or monthly - for investors means the onus is on portfolio liquidity, rather than chasing the best opportunities that are often seen further into the liquidity spectrum. Just look at the best performing strategies this year (beyond just crypto) and they have invariably been in longer duration private investments.

In a world where equity markets ‘appear’ ripely valued, central banks are tightening their drawstrings, rates are rising and there is the very real likelihood of high volatility, institutional investors are increasingly aligned with managers in wanting long-term absolute performance and are prepared to pay for it.