On March 7th, Alpha Theory hosted a book club with over 30 portfolio managers, analysts, and allocators coming together to discuss Ted Seides’ book, “So You Want to Start a Hedge Fund?”. We were lucky enough to have Ted present and answer questions about the capital raise environment, investment process best practices, hiring, keeping investors happy, etc.
Here are a few takeaways:
1. CAPITAL RAISE ENVIRONMENT: It’s hard out there and isn’t getting any easier. Allocators are getting pressure from their investors about their hedge fund investments.
2. INVESTING ENVIRONMENT: Once again, it’s hard out there and isn’t getting any easier. There are more smart managers than ever looking at the same ideas.
3. FEES: Fee pressure will continue and managers will be asked for fee strategies which better align the interests of the investor and the manager.
4. DURATION DISCONNECT: There has been, and probably always will be, a disconnect between the duration that a manager is judged and the duration in which a manager manages their portfolio. The best thing a manager can do is be open and honest about their challenges so that investors get comfortable with volatility of performance numbers.
5. TURNOVER: Managers should be quick to remove “bad fit” analysts, even if they’re going to get push-back from investors over changes with the team.
6. STASIS: Many hedge funds have a “set it and forget it” mentality towards culture, personnel, and investment process. Many great corporations have advanced human capital strategies and hedge funds can leverage that knowledge to build superior organizations (i.e. Bridgewater or Point72).
7. COACHES: To prevent stasis, it is important to read and sometimes bring in outside help. There are experts in team building, time management, bias mitigation, decision science, investment process, etc.
8. RUNNING A BUSINESS IS HARD: Most hedge fund managers don’t have the luxury of just picking stocks. They’re charged with hiring/firing, raising capital, investor relations, human resources, picking accountants, selecting offices, etc. All the things that a CEO of a company deals with plus managing a fund. The reason portfolio managers are so busy is because they have two full time jobs.
9. THE BET: As most know, Ted was the other side of the famous 10-year bet with Warren Buffett pitting the S&P 500 against a basket of hedge fund allocators. Ted still fully believes that hedge funds can outperform in the right environments (i.e. market is overbought).
Thanks to all those that attended and contact Alpha Theory if you would like to learn more about attending future book clubs.