I ran across a PE fund that had an IRR of ~10-11% in their 2010 vintage Fund II and yet managed to raise in 2016 a ~$650mm Fund III (albeit $150mm of that is founder’s money)
This seems crazy to me. A hedge fund would have never been able to raise money off the back of that performance as it is significantly lower than market return during that same period.
What am I getting wrong here? I don’t understand why pools of sophisticated capital would still allocate to these guys while I see hedge funds that put up strong numbers struggling to raise money
Please @ any forum members that work at such institutions as their advice would be much appreciated
Jamoldo
I don’t know anything about PE, but hedge funds can definitely raise capital with an 11% annualized return if that return is uncorrelated with the market. I.e a fund that returns 8-14% with a 2+ sharpe every year with no down years over a 10+ year period is an impressive record in the HF world (not necessarily the case for L/S funds that tend to ride beta). Not all funds operate like this anymore but they are called hedge funds for a reason - investors are willing to pay up for lower returns so long as they’re uncorrelated with traditional equity and fixed income markets. 11% return with no correlation to traditional markets is extremely impressive
I agree. The whole premise in the original question is dead wrong, so there's not much more to comment.
Thanks guys. I appreciate your comments. I used to work at a start up fund with very strong performance (much higher returns than the numbers quoted and 2+ sharpe over a multi year period) and assets were steadily raised but the PM was always stressed about fundraising. Perhaps that is just his personality. That and the current structural issues in the hedge fund world led me to ask the question.
I appreciate your response.
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