Where is the Sweet Spot for Hedge Fund AUM?

Size matters when choosing a hedge fund, and bigger isn’t always better.

(July 17, 2013) — Investors who plumped for a middle-sized, equity-focussed hedge fund stood a better chance of outperformance last year than those opting for larger or smaller options, research has found.

US-based, equity-focussed hedge funds with between $500 million and $3 billion performed the best out of their peer group in 2012, partly due to their size, a survey by Tabb Group today has shown.

“Medium-sized hedge funds fared the best in 2012, with 79% reporting positive performance and only 14% experiencing negative performance,” the survey said. “Small firms reported the largest percentage of negative performance, but this represented an improvement over 2011. The largest hedge funds had the most mixed results, with a quarter reporting flat results.”

Aside from manager talent, the actual size of the hedge fund appeared to be one of the main factors contributing to performance.

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Large firms-classed in this study as having more than $3 billion in client assets-have the capital “to invest in the technological and infrastructural requirements needed to comply with new regulation and to expand into new asset classes and regions in search of alpha”, Tabb Group said. Smaller firms on the other hand, have the nimbleness to adapt strategies easily and at relatively low cost.

Mid-sized firms, however, straddle these two strata, a position “that allowed these firms to simultaneously punch above their weight and move a bit more quickly”.

Some 63% of large firms reported positive performance with 12% reporting a loss. Smaller firms produced similar positive results-62%–but 31% reported losses over 2012, Tabb Group said.  

The philosophy behind a firm was also an important factor, the survey showed.

Idea-driven equity-focused funds of all sizes performed 30% better than model-driven strategies in 2012. Only 18% of idea-driven strategies reported negative performance in 2012, compared to 29% of model-driven ones. Some 75% of idea-driven strategies reported positive performance last year, compared to 43% of their model-driven rivals. The remainder were flat.

 “It is well-known that some of the trends in the market place are playing havoc with quantitative models right now, including high correlations, liquidity-driven asset prices, persistent global macro crises, and the increase in activist investing,” the survey said.

Across the board, hedge funds of all sizes and style persuasion reported inflows over 2012, pushing the industry’s total assets under management higher than $2 trillion for the first time since 2008.

Related content: Fear & Liabilities in Las Vegas – the Anatomy of a Hedge Fund Boondoggle

University of California CIO Job Opens

Marie Berggen has retired after seven years as the $80 billion fund’s first CIO.

(July 16, 2013) – Marie Berggen, CIO of the University of California’s $80 billion portfolio, has stepped down, according to a spokesperson for the university president’s office. 

Berggren said in a letter that she had decided to retire for personal reasons. 

The board of regents will conduct a nationwide search for Berggen’s replacement, the spokesperson said. On July 18, the investment committee is expected to appoint an acting CIO.

Associate CIO Melvin Stanton and Randy Wedding, senior managing director for fixed income, are currently managing the portfolio, with additional oversight from the University of California’s (UC) CFO Peter Taylor.

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Berggren took over as CIO and vice president for investments in 2007, when the institution created the former position “in recognition of the size and importance of the university’s investments.” 

As of March 30, 2013, the UC system’s investment portfolio totaled $80.1 billion, including $59 billion in retirement assets and a $7.2 billion endowment.

Her starting salary was $375,000, according to UC documents.

She joined the UC treasurer’s office in 2002 after decades in the private sector with Bank One Corporation and First Chicago Investment Advisors.   

“We are grateful to Marie Berggren for her years of dedicated service as chief investment officer and the many contributions she has made to the University of California,” said UC President Mark Yudof. “The board of regents and I wish her a healthy and fulfilling retirement.”

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