by Donald A. Steinbrugge, CFA - Managing Partner, Agecroft Partners
Much is being written and discussed about the impact of the UK vote to exit the European Union. Agecroft Partners is among those that believe the impact from Brexit on the financial markets and global growth will be long lasting, primarily because the uncertainty of its implications will take a long time to unfold. There is speculation that other countries will follow, reducing economic growth in Europe. Further exits could have profound economic implications for the weakest economies within the euro block which have been propped up by stronger members. When uncertainty increases investors require a higher return for their invested capital. This often leads to a widening of credit spreads and a decline in equity valuations..
As a result, we expect to see an accelerated increase in demand for hedge fund strategies with low correlations to market benchmarks. The interest for these type of strategies began to increase after the market volatility last August and has continued through the first half of 2016. Higher beta strategies will likely be perceived as higher (and unnecessary) risk. Some of the strategies that will see a significant increase in demand include: relative value fixed income, market neutral long/short equity, CTAs, direct lending, volatility arbitrage, reinsurance and global macro. These strategies will see an increase in demand for both their perceived ability to generate alpha (returns unrelated to market direction) and as a hedge against a potential market sell-off.
This uncertainty will increase both hedge fund redemptions and re-allocations as money is shifted throughout the hedge fund industry. Only time will tell which specific hedge fund organization will benefit and which will suffer.
About Donald A. Steinbrugge, CFA - Managing Partner, Agecroft Partners
Don is the Founder and Managing Partner of Agecroft Partners, a global hedge fund consulting and marketing firm. Agecroft Partners has won 30 industry awards as the Hedge Fund Marketing Firm of the Year. Agecroft is in contact with over a thousand hedge fund investors on a monthly basis and devotes a significant amount of time performing due diligence on hedge fund managers. Don frequently writes white papers on trends he sees in the hedge fund industry, has spoken at over 100 hedge fund conferences, has been quoted in hundreds of articles relative to the hedge fund industry and is a regular guest on business television.
Highlighting Don's 30 years of experience in the investment management industry is having been the head of sales for both one of the world's largest hedge fund organizations and institutional investment management firms. Don was a founding principal of Andor Capital Management where he was Head of Sales, Marketing, and Client Service and was a member of the firm's Operating Committee. When he left Andor, the firm ranked as the 2nd largest hedge fund firm in the world. Previous to Andor, Don was a Managing Director and Head of Institutional Sales for Merrill Lynch Investment Managers (now part of BlackRock). At that time MLIM ranked as one of the largest investment managers in the world. Previously, Don was Head of Institutional Sales for NationsBank (now Bank of America Capital Management).
Don is a member of the Investment Committee for The City of Richmond Retirement System, a member of the Board of Directors for the Hedge Fund Association and a member of the Board of Directors of ChildSavers Foundation. In addition he is a former 2 term Board of Directors member of the University of Richmond's Robins School of Business, The Science Museum of Virginia Endowment Fund, The Richmond Ballet (The State Ballet of Virginia), Lewis Ginter Botanical Gardens, and the Richmond Sports Backers.
Agecroft Partners is a licensed broker-dealer, registered with the Securities and Exchange Commission (SEC) and is a member of The Financial Industry Regulatory Authority (FINRA), member SIPC and a member of The National Futures Association (NFA).