Emerging hedge fund managers are attracting capital by adopting competitive fee models and maintaining lean operating structures, according to the latest research report by the Alternative Investment Management Association (Aima) and investment banking company Marex Prime Services.
The “Standing Strong: Emerging Manager Survey 2024” survey by Aima, the global representative of the alternative investment industry, highlighted the strategies used by hedge fund managers overseeing up to $500 million in assets to remain attractive to investors. It covered key areas such as fees, employee numbers, costs, performance incentives, fund strategy and barriers to investor allocation.
Emerging managers have benefited from post-pandemic operational efficiencies, according to the researchers, with breakeven costs still below pre-Covid levels, despite rising macroeconomic pressures. This has allowed them to remain competitive while controlling expenses.
The survey revealed that over 85% of investors source new managers through personal networks or prime broker capital introduction teams, demonstrating the importance of relationships in securing allocations. Lawrence Obertelli, head of Emea Prime Service Sales at Marex (report co-author), said: “As the only report focusing exclusively on emerging hedge fund managers and investors, this comprehensive dataset spanning seven years offers insights into the industry’s evolution.”
Emerging markets lead hedge fund gains
Nearly half of investors are open to managers with track records of less than a year, indicating a growing willingness to take calculated risks with emerging talent.
However, according to the findings, investors are also demanding more transparency and communication from managers before committing capital. The time to close new investments has extended from six to eight months since 2022, with investors adopting a more rigorous due diligence process.
According to the findings, while emerging hedge fund managers face increasing expectations, the combination of cost efficiencies, flexible fee models and a growing interest in smaller funds positions them well to continue attracting capital in a competitive landscape.
Tom Kehoe, MD, global head of research and communications at Aima (report co-author), said: “This year’s research highlights the resilience and adaptability of small and emerging managers. Despite higher costs and intense fee pressures, these businesses continue to stand strong, attract investors and expertly manage expenses to stay ahead.”
Jack Seibald, global co-head of Prime Services and Outsourced Trading at Marex, said: “This year’s findings highlight that fund managers are resolute in the face of geopolitical and macroeconomic headwinds as fees have held firm, costs are contained, and headcount has been maintained. By focusing on costs and efficiencies, smaller and emerging hedge funds are able to succeed in a challenging economic climate.”
