Hedge Funds Await JOBS Act
As of September 23, hedge funds will finally be able to advertise and market themselves, at least to a certain extent. While the JOBS Act taking effect will be a non-event for many of large, established funds, others are planning to avail themselves of the opportunity.
Making it through 11 often-turbulent market years without a down year in its core products, Balyasny Asset Management is poised to tout its absence of style drift and steady returns, once the JOBS Act lifts a longstanding moratorium on hedge fund marketing and solicitation.
The ability to explain the value of their strategies can help hedge funds overcome the challenge of underperformance relative to equity indexes in recent years, a Balyasny associate said. “We look forward to showing real value in return features we offer,” the person said.
With the days of high-flying returns apparently over, at least for now, hedge funds’ value proposition is more aligned with diversification and uncorrelated returns. Funds like Balyasny, which has $3.5 billion under management, are focused on establishing a brand on value, alpha, downside protection, and consistency, the company source told Markets Media.
“There will be big opportunities for firms that can demonstrate their strategies meet the criteria of low volatility and steady returns,” and many will theme their marketing around performance consistency, the person said.
Balyasny’s core products have been ‘soft-closed’ for about two years, meaning only existing clients can invest new money. The firm may reopen some funds to take in additional assets early next year, in conjunction with a brand-recognition initiative, the source said.
Key brand messages to be stressed are uncorrelated returns, strong risk management, and alpha generation with limited directional risk taking. “Zero correlation to equities, annualized returns of 20% and an expectation of equally strong performance in up and down markets” would be Balyasny’s emphasis, the person said.
Hedge funds generally have found more interest over the past several years from large institutions and sovereign wealth vehicles, who seek sustainable returns and minimal downside risk.
Some market participants and operators have expressed optimism about the anticipated return to a focus on investment fundamentals in light of the U.S. Federal Reserve possibly winding down quantitative easing. A less-influential Fed may lead to more two-sided markets with less correlation across asset classes and individual securities.
With 120 investment professionals comprising more than half its employees, Chicago-based Balyasny was founded 11 years ago by Bears fans Dmitry Balyasny, Taylor O’Malley and Scott Schroeder. Its largest office is in New York, and it also has offices in Hong Kong and San Francisco.