The end of the coronavirus pandemic could bring a large number of new asset managers.
Data from eVestment show that the number of new firm launches tends to spike following economic crises.
Here’s why, according to data firm: As markets contract, asset management employees may be laid off. Instead of seeking out a new job, they start their own firms. Additionally, some of these employees leave their jobs voluntarily, with the goal of taking a new investment approach presented by market turmoil.
“You do a lot better when you’re a new young eager face when the times are tough,” John Alexander, director of consultants and investors at eVestment, said by phone.
In addition to the post-crisis attitudes of potential investors, Alexander said that there is a generational opportunity for younger investors to step in.
“Generationally, we’re kind of facing a weird brain drain in investment management,” Alexander said, pointing to aging executives who are contending with succession planning and firm continuity.
According to eVestment’s data, over 300 new asset management firms launched in 2009, just after the financial crisis. This was the highest number of single-year launches recorded since 1954, eVestment said. Most of those launches were in the hedge fund and alternative investment sector.
The data firm recorded similar spikes in 2000 and 2001, following the dot com bubble bursting, although on a smaller scale. In 2000, just under 200 new firms launched, while in 2001, it was just over 200.
“Difficult environments create opportunities in certain markets,” said Peter Laurelli, global head of research at eVestment.
At present, the number of new firm launches has been declining since 2014, according to the data. In 2018, just over 50 new firms launched, eVestment said. The firm is still collecting data from 2019 and 2020 but expects similar results for those years.
[II Deep Dive: Hedge Fund Launches Hit 18-Year Low]
But there is one sign that the tide could be turning. Data from PivotalPath shows that there have been 29 hedge fund — not firm — launches so far this year. The average size of the funds launched this year is just under $200 million, according to Jon Caplis, CEO and founder of PivotalPath, a hedge fund research firm and data provider.
“In this environment, that’s no small feat,” Caplis said of the fund sizes.
Still, Caplis, who spoke to II by phone, was a bit skeptical over whether hedge fund firm launches would spike following the pandemic. According to Caplis, it was easier for new hedge fund firms to launch in the past.
“Somebody could break away from a large hedge fund, they could raise money based on pedigree and where they came from,” Caplis said. “Now those are few and far between.”
Caplis said the attitude toward hedge funds in 2020 is different than what it was in 2008. The hedge fund firms that do exist, he added, have “done what they were supposed to do” during the pandemic.
Plus, investors are more optimistic about the asset class generally, Caplis said. “People are much more sanguine on hedge funds in 2020,” he said.