Demonstrating a surprising amount of discipline, a slew of smaller, successful hedge funds south of the border have shut their doors to new investors.
The tactic seems a bit strange. Hedge funds are typically paid a 2 per cent management fee, so the more money in their coffers, the bigger their cut. But DealBook reports that smaller hedge funds learned a lesson during the crisis, when they grew too quickly and became unmanageable, and are therefore trying to constrain their growth.
The story cites funds such as Lakewood Capital Management, which has grown from $200-million to $900-million in just a year, as examples of firms that are shutting their doors to new investors for now. Similar funds include RouteOne Partners and Brenner West Capital Advisors.
This strength in fundraising has also been prevalent in Canada. Some of the smaller hedge funds here, some of which were started by ex-bank employees, have had no trouble raising cash because they have connections from their old jobs. Although the managers had to prove themselves when they first started up, the money poured in after they established a track record.
Yet it's not like hedge funds are back to pre-crisis boom times. "The amount of money dedicated to small funds remains modest by industry standards," the story notes. "Gone are the heady days when unproven firms could raised $1-billion before making a single investment."
