MANAGING AND RESOLVING HEDGE FUND AND PRIVATE EQUITY FUND DISPUTES
CD: How would you characterise activity and performance in the hedge fund and private equity fund industries over the past 12 months or so?
Starr: From early to mid-2016, hedge funds struggled, with managers seeing flat to double-digit losses for their main funds. In particular, strategies that focused on macro trends and equity hedges were producing the worst returns. However, by the end of 2016, returns improved – a trend that has continued into 2017. In comparison, the private equity fund industry performed well throughout 2016 with continuously healthy appetites among investors, which helped to raise $589bn in capital globally. One notable trend has been a surge in megabuyout funds, defined as those that raise more than $5bn.
Schwartz: The environment for hedge funds has been challenging. Although returns improved in 2016 and the first quarter of 2017, the perception remains that performance has been disappointing relative to other investment alternatives and in light of the advisory fees levied by fund managers. Private equity funds have fared much better, undoubtedly because returns have significantly outpaced those of public equity markets.
Kish: Despite plenty of anecdotal evidence and press coverage about poor performance within the industry, we have seen a rise in the number of new offshore funds being formed – both hedge and private equity – in the last 12 months as compared to the previous 12 months. Market leaders continue to be able to attract large and rapid allocations from institutional and non-institutional money, which demonstrates that the alternative investment industry has not lost its appeal. However, with increased regulatory and compliance burdens, it remains a tough environment for start-up and emerging managers and those managers who are outside the genuine ‘top tier’ to maintain their competitive edge and continue to attract sizeable allocations.
Jul-Sep 2017 issue
Davis Polk & Wardwell LLP
Schulte Roth & Zabel
Skadden, Arps, Slate, Meagher & Flom LLP