Experienced managers are hard to fund

There is little capacity problem in the hedge fund market, especially for investors with money that managers believe will be around for the long-term. Sticky money and investors who want a relationship with the manager can even get closed funds to accept assets, said speakers at the recent Euromoney London hedge fund conference.

However, some investors are experiencing problems ensuring capacity is available as they chase a small pool of experienced managers.

Stephen Lowe, investment consultant to the Railways Pension Trustees Company (Railpen), a UK rail pension fund that is interested in hedge funds but yet to invest, said there is 'clearly capacity' in hedge funds.

'It was a concern a year and a half ago but it is not really an issue now,' he said.

The pension fund has found room to invest, particularly in funds of hedge funds. 'If we tell them we can only speak if there is room for at least $50m they never have a problem,' he said.

Robbert Coomans, of Stichting Pensioenfinds ABP, the pension fund for government and education authorities in the Netherlands, said he has experienced some capacity problems because of the size of the fund, which has targeted $1bn to invest in hedge funds this year.

However, he agrees capacity can be found, even in closed funds. Many closed funds have been invested in by high net worth individuals and the funds welcome more stable money that is likely to remain with them for the long-term, said Coomans.

While managers can be encouraged to accept more assets under management, it is important for investors to be aware of capacity constraints on hedge funds, said Clare Flynn, chief investment officer at London's Avocet Capital Management.

Investors should be aware of capacity limits as many managers are not disciplined enough to refuse more assets under management, she added.She said hedge funds preference for 'sticky money' from investors taking a long-term view, meant they leaned towards institutional money.

Managers should give an idea of their maximum capacity to investors when they invest in a fund, she said. 'You have every right to ask on day one, and if you see me varying without good reason, you have every right to withdraw your money.'

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