The new 2015 EY global hedge fund survey provides for some interesting industry reading. One detail that caught my attention is the change in focus on what is most important to hedge funds. Its is not about getting better at their craft and generating more alpha. It is all about raising assets which means you have to appeal to the masses. The focus is on diversified product that broaden the scope of the firms.
The survey of large, medium, and small managers tells the same story. Forget about specialization with core products. Offer more multi-product solutions. Diversify across strategies. Manage a broader pool of assets. Build a sound firm not one driven by alpha generation.
What should happen to alpha? If you believe managers are skilled-based and need to create an information advantage through either collection or processing, then you will not like this new world. Alpha should not be enhanced. Of course, the argument is that hedge managers will be able to broaden their products to provide better diversification at a lower cost. That may be true, but the origins of hedge fund investing was to offer specialized managers with unique skills in a fund that would be different than traditional asset returns or market beta.
Previously, there was business risk if a hedge fund did not perform. The focus was on skill because you were a specialist. Now the focus will be on survival and protecting a business. This is bad news for the investor who wants to buy talent.
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