Economic experts predict that the hedge fund industry is set to undergo significant fluctuations in 2014. This is due to various factors including: the Fed’s goal of maintaining low interest rates, the increase in the amount of new funds with founders share classes and the JOBS Act’s Rule 506 ©.
According to a recent article in Hedge Co.Net edited by Alex Akesson, it is likely that the two year incentive allocation concept will become popular once again, simultaneous to the increase in popularity of private equity-type investments.
In terms of the impact of the JOBS Act, Akesson feels that as the year progresses, it is likely that managers will undertake some rather innovative profile-raising public advertising campaigns. D. Brooke Harlow, Executive VP and Managing Director of the Managed Funds Association, believes that:
Removal of the advertising ban led many observers to speculate about when we might see the first wave of advertisements from hedge funds on interstate billboards or as Super Bowl commercials. Anyone holding their breath for a flurry of hedge fund ads running alongside holiday commercials as we close out the year might be disappointed, but commentators attributing managers’ lack of engagement in public communication to widespread disinterest or fear of tarnishing their image with investors are ill-informed.
The new rules, Brooke Harlow notes, have been good for some funds, limiting for others. She pointed out:
Many SEC-registered managers also claim a registration exemption from the Commodity Futures Trading Commission, and to qualify for the exemption managers are forbidden from marketing interests in commodity pools to the public in the U.S. The CFTC’s rule has not yet been harmonized with the changes the SEC has made, leaving many managers in a regulatory limbo — able to take advantage of the SEC’s rule change but unwilling to endanger their CFTC exemption.
And then there’s the issue of unpredictability. In terms of general solicitation, if this is no longer a problem, there is a strong chance that managers will enjoy their new-found capacity to communicate freely, especially with regard to fund manager websites. Given that these days social media is the way to thrive, removal of this barrier will have a significant impact.
For those who want a better prediction of what will be with hedge funds in 2014, the Altß, launched by ex-head of by Long-Term Capital Management (LTCM) Hans Hufschmid might offer some insight. This hedge fund-industry tracker fund seeks to investigate similarities between funds with similar strategies, using a database of 10,000 funds.
If there are to be significant changes affecting the hedge fund industry this year, it is always best to be prepared through knowledge ahead of time.