How to screen credibility / reputation of hedge funds?
I understand that many hedge funds have private investment strategies. I am well-versed in the PE industry having done the standard 2 yrs ib 2 yrs pe prior to biz school. In the PE space, anything above $1bn for new fund raised puts the fund at mm / umm for me. Aside from the main tiger cub and multi managers, are there other solid hedge funds out there? I.e. a Tiger Global or Viking = Blackstone / KKR, but what about the Berkshire partners or Golden Gate's of the world?
TLDR: how would you go about screening for reputation of a hedge fund that isn't a household name? Can you use AUM as a marker? What would the equivalent be for 1bn latest fund raised?
AUM size, composition of AUM (family offices, HNW, endownments, etc.), audited historical returns, PM's background, PM's prior fund and its performance (if applicable), comp for the job
I think it's just harder to fit into that framework because there is more style variance and less lower persistency of returns / brands than in PE.
1) targeted first year all-in compensation
2) fee dollars / investment professional (historical returns * performance fee % * AUM / investment professional)
3) prestige of where people worked before (because people with options tend to pick highest comp... people at MS M&A etc pick the best places; people who are ex mega-fund PE also pick good places etc)
4) probability of promotion (assuming FIFO promotions, how many years must you stay in order to become a senior analyst?)
5) Julian number (how many degrees of separation is this fund from Julian Robertson? if you care about starting a fund one day, it's important to have some tiger blood in you. if it is diluted, it you are not one of the Holy)
the market is efficient, so don't kid yourself - none of these funds are actually good at picking stocks. if a fund scores highly on this criteria above it may actually be somewhat less likely to generate alpha. some are still far better options for extracting value for you.
important to see if their AUM is from a single investor or diversified
Playing devil's advocate here... I feel like a lot of the filters mentioned so far are very conventional, and the way most people would look at this e.g. aum per headcount, historical returns, founder pedigree. Like the hands down smartest guy I've heard is dan mcmurtrie and he has pedigree most of you guys would scoff at... but he sounds smart af.
Similar to picking a stock, feels like we should employ a differentiated set of criteria to pick out hidden gem funds/managers to work for. Maybe something like extreme alignment with investors e.g. 90% of net worth invested in their own funds? Would love to hear more unconventional ideas/criteria
+1 for mugatu
You are quite right I think. That is why multi-managers exist, to pick out the unpolished gems.
But OP here asked about indicators of reputation, and not for predictors of a fund's success. I think predicting if fund has alpha, is just as hard as finding alpha.
fair point. but i think OP's question is really a proxy for "how do I know this is a good fund to join as i'm going through the interview process?"
What's considered strong annualized returns in the HF world? I know in PE a good IRR is ~20%+ but is that the same for HFs?
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