Volcker'd Out: Unexpected Entrants in the Hedge Fund Market
In the waymanship of failed tests and market events, many things have changed over the last two years for the alternatives industry. Besides the JOBS Act, nothing more compelling than a simple piece of legislation has rocked the seismic activity of the hedge fund market... until the Volcker Rule.
Market displacement vastly affects a number of verticals, but none so existentially as a simple rule from a not-so-simple guy who decided prop desks needed a revamp and the United States Congress was the vehicle to deliver it.
Many prop desks—if not all—will disassociate themselves from current activities to restructure in more hospitable environments. As prop traders move from their desks, many will certainly go out on their own in an effort to seek alpha once more.
Woe is to the man who shall go on his own into this economy. But even more woe is to he or she who unexpectedly finds them self at the tip of an unexpected iceberg that is today's hedge fund market.
What this means for the emerging fund market is more than just a crowded playing field—as these traders move from proprietary desks and set up their own structure, they will undoubtedly have a drastic effect on an already crowded marketplace. They are the ones who not only yielded to an onslaught of regulation—as we all have—but have taken into their own hands the vast complexity of new business in an age where businesses are difficult.
They are new and unexpected. They are Volcker'd out.
For the established, and the almost-yet-to-be established funds, these new entrants become a quality problem. A quality in the sense that the bar is raised, if not by necessity but by reality, and each fund will have to differentiate in new and creative ways in order to attract allocations, build runway, and generate alpha.
In this new reality funds will need to be nimble, smart, and candid as they protect investors with transparent operations and real-time reporting.
Unfortunately, not all will be able to deliver on this promissory note—but those who do will find that opportunity is a mark of freedom, where trouble is only found in the failure to innovate.
Market displacement vastly affects a number of verticals, but none so existentially as a simple rule from a not-so-simple guy who decided prop desks needed a revamp and the United States Congress was the vehicle to deliver it.
Many prop desks—if not all—will disassociate themselves from current activities to restructure in more hospitable environments. As prop traders move from their desks, many will certainly go out on their own in an effort to seek alpha once more.
Woe is to the man who shall go on his own into this economy. But even more woe is to he or she who unexpectedly finds them self at the tip of an unexpected iceberg that is today's hedge fund market.
What this means for the emerging fund market is more than just a crowded playing field—as these traders move from proprietary desks and set up their own structure, they will undoubtedly have a drastic effect on an already crowded marketplace. They are the ones who not only yielded to an onslaught of regulation—as we all have—but have taken into their own hands the vast complexity of new business in an age where businesses are difficult.
They are new and unexpected. They are Volcker'd out.
For the established, and the almost-yet-to-be established funds, these new entrants become a quality problem. A quality in the sense that the bar is raised, if not by necessity but by reality, and each fund will have to differentiate in new and creative ways in order to attract allocations, build runway, and generate alpha.
In this new reality funds will need to be nimble, smart, and candid as they protect investors with transparent operations and real-time reporting.
Unfortunately, not all will be able to deliver on this promissory note—but those who do will find that opportunity is a mark of freedom, where trouble is only found in the failure to innovate.
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