Adam Blitz – Inside Hedge Fund Allocation (Capital Allocators, EP.17)
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Selection Factors
emphasizes the importance of liquidity and qualitative factors in hedge fund manager selection. He notes that while quantitative data analysis is crucial, understanding a manager's motivations and competitive drive is equally important. Adam explains that the hedge fund industry has shifted from focusing on return enhancement to risk mitigation, which has influenced how managers are evaluated today 1 2.
So much of manager selection and trying to figure out who's going to do well prospectively is based on much softer factors, such as why is the person doing this? What drives them?
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This evolution reflects a broader trend towards institutionalization and risk management in the industry.
Manager Sourcing
Sourcing potential hedge fund managers involves a mix of proactive outreach and leveraging existing networks. describes how Evanston Capital Management meets over 200 new managers annually, often through introductions by prime brokers or existing managers 3. These meetings, even if unlikely to result in investment, provide valuable market insights 4.
Our view, though, has always been to take every meeting, because almost in every meeting you're going to learn something about, even if you might know within the first minute, we're not going to invest in these people.
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This approach ensures a continuous flow of new ideas and perspectives, essential for identifying promising candidates.
Evaluation Process
The evaluation of hedge fund managers at Evanston Capital involves both clinical and intuitive processes. explains that due diligence includes reference checks, background verification, and analysis of past performance to ensure consistency with claimed strategies 5. The decision-making process is dynamic, involving weekly team meetings to debate and assess potential investments 6.
We really want to think of these as, you know, as long term partnerships.
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This rigorous approach helps in forming long-term partnerships with managers who align with the firm's investment philosophy.