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Big multi-managers may miss out on niche firms

Smaller hedge funds are often early-stage managers investing in niche areas and, in general, tend to perform better than later-stage managers.

Smaller multi-manager funds, such as the newly launched PSolve Alternative Investments select opportunities fund, can easily access small specialist hedge funds. But the bigger multi-manager funds may neglect niche players because they are often too small to take the amount of cash the multi-manager needs to place.

Allenbridge Hedgeinfo director of global hedge fund rating and research Jacob Schmidt says: “For many of the bigger fund of funds, it is not an efficient use of their time and resources to look at smaller funds, but sometimes the small guys become big. Sometimes it is easier to find opportunities when small because the manager is hungrier.

“There are some good smaller hedge funds out there but they will remain small until someone gives the managers more money.

“The ultimate question that multi-managers should ask is – what performance are they going to get and what is the risk of investing in an early-stage manager?”

PSolve Alternative Invest-ments managing director Soondra Appavoo says: “Specialist managers, which tend to be smaller players, are the focus of our new fund. For example, one of the holdings is an equity long and short fund investing only in US real estate.

This type of fund is harder for the bigger managers to access – the biggest problem they have to face is where to place a lot of money.”

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