Managers of some of the world’s leading hedge funds say they are reaping a benefit from the financial crisis in the form of substantially less competition from the once-mighty proprietary trading desks of investment banks.
During the boom years of this decade, proprietary trading desks at many banks began to take similar trading positions as their hedge fund clients.
This led to complaints from hedge funds they were facing direct competition – if not mimicry – from the trading arms of banks they turned to for financing.
Daniel Och, founder of publicly traded Och-Ziff Capital Management, said in an interview with the Financial Times that his company is currently seeing less competition for investments, making it easier to capitalise on opportunities.
“The proprietary trading desks at banks are substantially less active,” he said.
One sign of the improvement is that Och-Ziff’s flagship fund, which is up 4.4 per cent in the year to March, after losing 15.9 per cent in 2008, according to regulatory filings.
In all, Och-Ziff manages more than $20bn.
Another prominent hedge fund manager, Paul Touradji, of Touradji Capital Management, said the situation reminded him of his early years in the industry, when a smaller number of players pursued arbitrage opportunities.
“There was a dearth of risk capital and that is exactly what we are seeing now,” said Mr Touradji, whose company manages about $3bn.
Mr Och added that bank cutbacks were also expanding the talent pool for established hedge funds. “There is no doubt the number of incoming calls we are getting from senior people across the world has increased,” he said.
The hedge fund industry continues to suffer outflows. Investors redeemed nearly $103bn in the first quarter, according to data released on Tuesday by Hedge Fund Research.
This represents 7.3 per cent of industry assets, but remains less than the record for quarterly withdrawals set in the fourth quarter last year when investors withdrew more than $152bn from the hedge fund industry.
A report this week by Bank of New York Mellon and researcher Casey Quirk predicted that withdrawals will be reversed in the coming years and hedge fund assets will reach $2,600bn by the end of 2013, almost double estimates for global hedge fund assets under management at the end of last year.