It is much easier to be successful when focused narrowly on an area of specialization. This principal applies to many businesses and activities. In the asset management industry, success often comes more quickly to firms that focus narrowly on core competencies. They are able to concentrate resources specifically in the investment capabilities where they have truly differentiated skills and competitive advantages.
Another application of this principal is in consulting businesses. One must offer advice in disciplines where one has demonstrated skill and expertise. When a marketplace need aligns with differentiated skills that are properly focused on a service offering, success often follows. This can be very rewarding on both a personal and professional level.
In the difficult current economic environment, the specialization principal is even more important. In order to differentiate oneself from the competition, one must have demonstrated expertise in a specific area as buyers look for the best skill sets for specific needs. In the times we find ourselves, this principal applies to both businesses and individuals looking for an edge.
February 9th, 2010
In the post-financial crisis world, there are a lot of questions swirling around regarding the demand for hedge funds and what their proper allocation should/will be within investment portfolios. Will the prior trends toward wider acceptance resume, or will they be curtailed by residual fears of loss and mismanagement?
I believe that the hedge fund world will be broken down much more specifically by strategy. It has been recognized by many for some time that there has been an artificial separation between “traditional” and “alternative” investment strategies. The alternative bucket has encompassed all types of disparate investment strategies. Going forward, analysts, investors, and plan sponsors should and will continue to incorporate a variety of strategies into portfolio structures based on the risk and return characteristics of each strategy rather than an artificial label.
The more important separation, which will become more prominent, will be between alpha and beta, where strategies that generate true alpha will continue to be rewarded, while more beta oriented strategies will be marginalized to compete with the growing array of passive alternatives. In addition, within the hedge fund arena, greater scrutiny will be placed on transparency and the need for managers to operate like their traditional counterparts, increasing their need for operational infrastructure, compliance support, and other mainstream business functions. As these resources are built, hedge funds will become more and more mainstream investment alternatives, led by those that are most easily understood and transparent. By strategy, long/short equity appears to be a prime candidate; indeed it seems that such strategies are already growing institutionally.
December 10th, 2009
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