The Challenge of Discovery

In the hedge fund industry, the struggle to find and support emerging managers mirrors the challenges faced by independent filmmakers trying to secure distribution in a Hollywood landscape dominated by blockbuster franchises. Just as major studios prioritise sequels and established narratives, large hedge funds overshadow smaller, innovative funds, making it difficult for investors to discover promising emerging managers.

The Paradox of Performance

Hedge fund investors eager to diversify their portfolios often rely on personal networks or prime broker introductions to source new opportunities. However, this reliance can create a narrow funnel, leaving many talented emerging managers unnoticed. While two-thirds of investors express openness to allocating capital to funds with less than US$100 million in assets under management, most still require a track record of performance before committing funds. This creates a paradox where emerging managers need capital to build a track record but struggle to attract that capital without one.

Missed Opportunities

The lack of exposure for these smaller funds not only hampers their growth but also restricts investors from accessing diverse strategies that could enhance their portfolios. Much like independent films that fail to reach audiences due to limited distribution channels, emerging hedge funds often go unnoticed in an environment that favours established players.

Bridging the Gap

To address these challenges, enhanced transparency and communication from emerging managers are essential. By improving visibility and articulating unique value propositions, these smaller funds can better position themselves in front of potential investors. Creating platforms that facilitate connections between emerging managers and institutional investors could bridge the gap, fostering innovation across the hedge fund landscape and allowing investors to benefit from fresh perspectives.