Top Hedge Fund Investors by Cathleen M. Rittereiser & Kochard Lawrence E

Author:Cathleen M. Rittereiser & Kochard, Lawrence E. [Rittereiser, Cathleen M. & Kochard, Lawrence E.]
Language: eng
Format: epub
Published: 2010-05-31T16:00:00+00:00

Terms and conditions, like the length of the lock-up and the fee structure, also affect manager selection and portfolio management decisions.

Lock-Ups and Liquidity Moelchert expresses a contrarian view of lock-ups. “I honestly think the whole industry would be better off if everyone had longer lock-ups.” Longer lock-ups are more conducive to a long-term investment horizon, but “the world has a short-term view.” Otherwise, he would prefer longer lock-ups, but thinks the market won’t permit it.

He advocates longer lock-ups primarily because he thinks many investors have “knee-jerk reactions” in difficult markets. He advises hedge fund managers and funds of hedge funds leaders to manage liquidity carefully, because “when they (investors) want their money back, they want their money back.” He adds, “You don’t want a call from a manager putting up a gate because there’s a liquidity mismatch.”

Keeping the liquidity demands of investors in mind, the Private Advisors team tries to find managers with “livable liquidity provisions.” They have spent enough time in the market that Moelchert feels confident, “We can find managers we like with reasonable lock-up provisions.”

Fee Structure The best managers will always get paid a premium, but overall “the hedge fund industry is running a little scared.” As a result, some managers have offered the firm better liquidity terms and fee breaks.

Moelchert believes hedge fund managers should establish a hard hurdle rate because, “Paying hedge fund fees to get T-bill returns is not reasonable.” It is reasonable for investors to have the ability to claw back returns. He has seen too many “one-way street” instances, when a manager closes a fund without earning back losses and soon opens a new fund for investment. Moelchert would not likely invest in the new fund, citing a classic reason: “Fool me once, shame on you. Fool me twice, shame on me.”

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