As the hedge fund industry has grown, so have managers’ demands on equity research providers.
“Over the last decade, the skew of demands on our department has meant that our time spent with hedge funds has consistently grown,” said David Adelman, director of equity research for the Americas at Morgan Stanley. “It has grown before, through and post-Covid.”
In part this growth reflects the hedge fund industry’s performance and asset flows, he said. Global hedge fund assets have continued to soar, hitting an all-time high of more than $4.3 trillion at the end of the second quarter this year, according to BarclayHedge.
Bank of America has seen a similar evolution of its client base and the focus of its analysts, according to its head of Americas equity research, Brett Hodess. “If you really look at our client base 50 years ago, it was dominated by large, institutional, long-only investors with longer term views for investing. They had excellent investment professionals, but not as many — most of those funds had just a few portfolio managers. And it was somewhat of a homogenous client base, so the products that we produced for them were pretty similar for everybody.
“Now we have a really broad range of clients,” he continued. “We still have those long-onlys, but we also have the giant platform hedge funds that have hundreds of PMs and analysts, who are all specialists in specific verticals. We have smaller and more focused hedge fund clients. We have private equity and VC firms as well as the sovereign wealth funds. So the client base is really different and as a result analysts today have to be focused on the longer term — they have to take a look at the broader picture but also have to be hyper focused on the near term.”
That near term picture has for the last 19 months been dominated by the Covid-19 pandemic, which, along with broader trends in the hedge fund space, has led to increased research consumption by alternative managers...