"Size gets size."
That was the take away message from a panel on the state of Canadian hedge funds at a CIBC World Markets conference on the future of trading Tuesday. The direct quote came from Courtenay Wolfe, president and chief executive officer of Salida Capita.
Her main message: clients often overlook Canadian firms unless they have at least $1-billion in assets under management. Instead, they flock to the shops where everybody else seems to be going, even if there are better managers at the smaller funds.
It has created a conundrum for Canadian hedge funds because the market here is only so big and it's very easy for Canadian clients to put their money in U.S. funds. Canadian pension funds are the biggest culprits as most of them won't look at Canadian managers.
That frustrates Canadian shops. "Some of the best talent is here, but you don't have size," Ms. Wolfe said. Mark Purdy, managing director at Arrow Hedge Partners concurs. "People think all the smart guys are in New York and London," he said.
Because so many clients look at size as a measure of success, "in this country you have to do something every day to raise capital," said Barry Allan, managing director at Marret Asset Management, meaning he can't sit back and focus solely on managing money.
This hunt for capital makes it very difficult for new firms to start up. In today's environment with shaky investor confidence, Mr. Allan said in order to start a new fund, "you probably need to be very rich to seed yourself."
Add to that the new barriers to entry that have gone up, and it provides even less incentive for new funds to start, said Colin Stewart, portfolio managers at JC Clark Ltd. Today firms have to worry about more compliance issuers, advanced technology and increased regulation.
It isn't easy out there for Canadian hedgies.
Tim Kiladze