- The hedge fund game is dominated by big players, and it can be tough for true innovators to carve out a niche. Here are eight people making their mark with new twists on fees, data, ESG investing, and more.
- Investors have questioned the hedge fund industry’s high fees and recent lackluster performance — which has helped make the case for new ideas more compelling.
- Click here for more BI Prime stories.
The hedge fund industry is often slow to embrace change.
Sure, funds start and close every year, and managers tweak investment strategies and fee structures, but many have been sticking to the same basic approaches for decades.
We found eight people who are actively trying to change things up when it comes to data, fees, sustainable investments and more.
They work at places like JPMorgan, APG Asset Management, and Acadian Asset Management, among others. Some have been at their mission for years while others are just starting out, but all of them are doing something that turns conventional thinking in the hedge fund space on its head.
Jim Carney, CEO of Parplus Partners
One of the defining traits of hedge funds is their high fees.
While the industry has been moving away from the once-common 2% management fee and 20% performance fee, hedge funds still stand out at a time when fees on retail investor-geared products are in a race to the bottom.
Parplus Partners, a New York-based volatility trading hedge fund, has come up with a different model. Jim Carney’s fund trades volatility options and holds cheap S&P 500 index funds, and collects performance fees of 33% only if it outperforms the market.
"I wanted to have our interests aligned with investors," Carney told Business Insider. Carney launched Parplus in 2017 with seed capital from his former employer Ronin Capital, and has made a name for his fund thanks to the fee structure.
After starting with just $13 million, Parplus has more than $120 million in assets now, and the fund finished 2018 up 78%, according to a factsheet.
Management fees, Carney says, encourage funds to go out and raise a lot of money instead of focusing on actually managing it.
"We want to use investor money in the most efficient way," he said.
Parplus currently runs one fund, which trades options on the stock market’s volatility, but is planning to roll out a fixed-income fund as well, which will have similar performance hurdles.
Basil Qunibi, CEO of Atom Investors
Turning a data company into a hedge fund isn’t always easy.
Financial Risk Management and CargoMetrics Technologies have had success transforming into hedge funds.
But there’s also the case of Incapture Technologies — backed by former Barclays CEO Bob Diamond — which flamed out after a year amid investor worries about Incapture selling its proprietary technology to competitors.
But Atom Investors is different, mainly because its founder Basil Qunibi, who also started data company Novus, has always wanted to be in the hedge fund game.
Hearing Paul Tudor Jones and John Griffin speak at his alma mater, University of Virginia, helped fuel Qunibi’s interest in the industry, he has said, but after a stint at Merrill Lynch he didn’t find many funds that would hire him.
"I interviewed at a lot of hedge funds, I didn’t get a lot of offers," he said on Ted Seides’ Capital Allocators podcast last year.
Qunibi instead made his way into the industry from the investor side, working for a fund-of-funds that used to be a part of BNY Mellon, which was where he started developing the basis for Atom.
Novus was created "a little bit out of frustration," Qunibi said on the podcast, because he noticed that investors were not doing deep analysis when picking hedge funds.
"It was a big surprise to me to see that fundamental analysis not incorporated into the selection of investment managers," he said.
Qunibi said on the podcast that Novus’ big value to allocator clients is helping them understand underlying skillsets of managers.
Austin, Texas-based Atom now uses analytics from Novus to evaluate portfolios and make allocations to hedge funds, and is running more than $1 billion after launching last year.
Atom started by investing in 20 hedge fund managers through separately managed accounts, and according to a media report, pledged $200 million to short-selling start-up fund Orso Partners this summer.
Jamie Kramer, head of alternatives solutions group at JPMorgan
Hedge funds have been looking more at ESG ratings when evaluating investments. And now, thanks to one person, they’re also paying attention to how their own business stacks up.
"When we first started asking ‘Does the manager have an ESG policy?’ we got people saying ‘Do we have a what?’" said Jamie Kramer, head of JPMorgan’s alternative solutions platform.
JPMorgan’s platform works with roughly 100 hedge funds that clients can use to build portfolios, and it started tracking ESG metrics on the managers in early 2018.
At the time, only four hedge funds on the platform had a formal ESG plan for their own businesses, Kramer said.
Now, with the help of Kramer and her team, roughly half of the managers do, and JPMorgan hopes that will hit 75% in the next year.
To Kramer, it’s a no-brainer for hedge funds, which are already tracking every other type of performance metric.
"It’s being aware of what of the nonfinancial will eventually drive financials," she said.
"Once you measure something, people are going to pay attention to it," she added.
JPMorgan last year also began tracking diversity at hedge fund managers when evaluating whether they should be added to the platform, running the stats to see which ones had a significant owner or prominent investor that is a person of color or a woman.
Of the invested capital in the funds on the JPMorgan platform, 38% is with women- and minority-led managers, and a quarter of the managers are women- or minority-led.
In contrast, women and minority-owned hedge funds control less than 1% of industry AUM and represent only 13.5% of firms, according to the Knight Foundation.
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