EXCERPT FROM ARTICLE, Breaking out of the mould: When investors shun HF buckets, by Chris ClairBruce Frumerman, founder and CEO of Frumerman & Nemeth, a communications and sales marketing consulting firm that works with hedge fund managers, says by the time sophisticated investors sit down with prospective managers they’ve already determined that the manager’s strategy and firm pass muster in terms of returns and risk, asset size, operations and administration. “Assuming you pass through those screens and people are willing to give you time and attention, they want to know ‘In what context should I view you? What are the ways I can use you in my total portfolio?’,” Frumerman says.
“How do you seek to generate alpha in your space? And then talk to us about the approach and methodology you employ. What’s your risk management protocol you employ to try to pursue above-market returns while mitigating risk? Then what in your case are the main steps you’re taking to mitigate company risk, sector risk or country risk, if that’s applicable. Those are the questions that managers blatantly get asked.” And those questions do not change based on where hedge funds are classified within a portfolio, Frumerman says. “But it makes them much more important because you’re now tossed in with the heap of not only active equity, you’re also tossed in with passive equity.” When that is the case, managers have to be able to explain why what they do is not replicable with an index, or investors will not be interested in paying them management fees, let alone performance fees.”
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