After all the criticism that hedge funds are abandoning traditional HF approaches, industry players are saying it's the investors who are pressing them to measure performance against benchmarks rather than focus on alpha. "Hedge funds hate benchmarks," declared Nicholas Roe of Citigroup at the Reuters Hedge Funds and Private Equity Summit, but, he adds "investors' habit is to push towards relative performance. Unfortunately, it's the way of the world; people love to have something to compare performance with." The source of that pressure appears to be mainly pension funds, whose "natural tendency is to think about benchmarks," Nils Tuchschmid of Credit Suisse told the conference. This move away from absolute performance is worrying some, and may force changes in the hedge fund industry. "I think the hedge fund space is going to segment," noted Bill Maldonado of HSBC Halbis Partners. "Some hedge fund strategies are easier to operate in than others, and you get fee pressure in these," particular, he says in long-biased long/short offerings.
In other comments at the summit:
- Hedge funds will expand their search for alpha by investing in real property, which offers higher security, and commodities, which could yield better returns – asset classes HFs wouldn't have touched a decade ago, said Ted Platt of Merrill Lynch. Hedge funds also will be exploring strategies that they expect will be around for longer than a year or two.
- Consolidation among funds of hedge funds, and even single-strategy funds, will continue as HFs seek to survive and better compete with their larger peers.
