New Holland Capital

“FOR MANY YEARS, PEOPLE SAID HEDGE FUNDS WERE BORING AND BETAS WERE DOING GREAT. NOW, PEOPLE HAVE REALISED BETAS PROBABLY AREN’T GOING TO CUT IT – SO THERE’S MORE ENTHUSIASM FOR HEDGE FUNDS THAN WE’VE HAD IN A WHILE.”

MIKE JACOBELLIS

CHIEF INVESTMENT OFFICER, NEW HOLLAND CAPITAL

The big continuing trend is consolidation and the bigger leaders gaining market share from everyone else, both in terms of the ability to attract and retain talent, as well as the capacity to attract allocators. Allocators are sticking to a smaller list; it’s easy to give money to a top 50 shop, where there is less career risk. That also dovetails to the prime brokerage space, where they want to deal with a smaller number of clients as well. In general, that sets a good backdrop if you’re in the hedge fund business – the leaders, as long as they generate decent returns, have a tailwind. The counterpoint to that is that it may not necessarily be where the best alpha is; rather, it’s just the best place to be in the market if you’re a hedge fund manager. For us, that makes it even more attractive, especially if you’re looking at the smaller managers where it’s a little harder for them to attract capital. We continue to believe that the best alphas are in things that are capacity-constrained, a little off the beaten track, and which don’t scale easily without dilution. Our focus is managers with USD50-300 million that can run USD200 to USD700 million, and they have these interesting alphas that just don’t scale. For us, they’re explicitly doing something different that cannot be scaled. We think pure alpha cannot be easily scaled. 2022 will also be the year where certain crypto strategies enter the mainstream even more, beyond just the beta trades, and become less fringe. When people are looking forward to expected returns, they are acknowledging that equities and interest rates and credit are not going to hit the bogies they need. For many years in a row, people said hedge funds were boring and betas were doing great. But now, people have realised betas probably aren’t going to cut it – so there’s more enthusiasm for hedge funds than we’ve had in a while, simply because the alternatives don’t deliver the returns investors need.