What is the pitch with levered long HFs?

Say I am an institutional allocator and I am being pitched by guys like Tiger, Altimeter, Dragoneer etc. Their product seems to essentially be levered long tech but I would think there are significantly cheaper ways of getting that exposure as an allocator?

I 100% understand L/S MM etc but the above seems like it's missing special sauce?

Also - let's ignore the private strategies for now. I get that side of it.

I texted a few friends who work in HF and their explanation was just that those funds are sexy but there must be more to it? lol

Comments (9)

May 11, 2022 - 6:25am
AHPD, what's your opinion? Comment below:

Your friend is correct. Some of it is to do with allocating to sexy managers who get looks on good deals and probably a case of the 'the devil you know' as well. They can be hard to access and allocators are quite happy to continue writing the cheques to stay in.

With exceptionally long investment horizons they can afford to take higher volatility over the short-term.

May 14, 2022 - 5:41am
Anchor, what's your opinion? Comment below:

I imagine they all had a pretty compelling case for a long time as to why getting your tech exposure via them was worth the fees and it probably was. If you're an allocator under pressure to reach for yield in fed driven bull mkt you might know the bet you're making and sleep better knowing "no one gets fired for buying IBM". That said when you get to a certain size and start loading up on some of the junk they had - you should be asking if there's an explicit factor/rate bet or strategy drift. Some funds want to put up the best ROI, some want to produce the most dollar returns. We don't really know why the fee structure or lockup was like or convos with LPs maybe they very clearly expressed: this crossover product is an index fund for pre-IPO tech - which is a unique product if you want to make that bet. Just guessing.

  • Principal in HF - Other
May 14, 2022 - 9:16am

They're farts. 

I find quant and macro funds much more sexy intellectually. Some arb strategies are pretty decent as well.

With equity, meh, see how this current market whack the shit out of those equity funds. 

I mean, if you're an institutional investor, you're already have equity in your portfolio for growth, why would you allocating to alternatives to have even more equity exposure (but with excessive use of leverage)???

Bottom line:

L-only = PE but without the ability to shield from public market selloff

L/S = pretend to be more sophisticated than L-only guys but their short book drag return when market is bullish, and their long book implode when market tanks. Useless.

No respect for people in HF equity.

  • Analyst 1 in HF - Event
May 14, 2022 - 9:19am

Macro funds also get crushed and have high volatility 

Most Helpful
  • Investment Analyst in HF - Other
May 14, 2022 - 1:02pm

Hard to believe you're a principal at a HF when you dont understand the benefits of a levered, beta neutral L/S strategy.

  • Principal in HF - Other
May 14, 2022 - 1:21pm

Name one L/S fund does well in current market carnage. Or any past event where market regime changed from rich liquidity to contracting liquidity. 

Levered? What a stupid comment when macro hit you in the rear and asset correlation all goes to 1, coupled with leverage, that's when your fund blows up. 

  • Investment Analyst in HF - Other
May 14, 2022 - 3:22pm

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