The COVID-19 pandemic has had a significant impact on the hedge fund industry, including its fundraising activities. Although the full impact of the pandemic on alternative investments remains to be seen, there are some glimpses into what is defining the new standard, particularly when it comes to raising capital. Our latest article shares five ways hedge fund fundraising has changed after COVID.
1. Increased Use of Virtual Communication: In-person meetings and events were a common way for hedge funds to raise capital before the pandemic. However, with travel restrictions and social distancing measures in place, hedge funds have increasingly turned to virtual communication to reach potential investors. This has led to an increased use of video conferencing, webinars and other digital communication channels that hedge fund managers and investors are still leveraging today to conduct many business practices that were once performed face-to-face. Although the benefits of meeting in person can never be replaced, hedge fund managers can conduct early meetings with investors virtually more efficiently.
2. Greater Focus on Technology: Hedge funds have always been at the forefront of using technology to gain an edge in the market. With the pandemic accelerating the shift to remote work and digital communication, hedge funds have had to adapt quickly and embrace new technologies to stay competitive. This has led to increased investment in data analytics, artificial intelligence, and other emerging technologies.
Companies like INCOS, a Swiss Financial Services affiliated company, have emerged to help fund managers systematize their fundraising process. The product combines video production, distribution, and analytics, providing fund managers a platform to engage with investors and gauge who is most interested in their investment strategy, saving them and investors valuable time.
3. More Flexibility in Fund Structures: The pandemic has brought significant market volatility and uncertainty, making it challenging for hedge funds to predict future market conditions. As a result, many hedge funds have introduced more flexible fund structures that can adapt to changing market conditions. For example, some funds have included more frequent liquidity options or allowed for shorter lock-up periods. Others have introduced hurdles tied to benchmarks and waived management fees for early investors. It is apparent that hedge fund managers, particularly emerging managers, are amenable to offering flexible fund terms to attract investor capital.
4. Increased Investor Scrutiny: The pandemic has highlighted the importance of risk management and operational resilience. Investors are scrutinizing hedge funds’ risk management practices and operational capabilities. Funds that can demonstrate strong risk management and operational resilience are likely to be more successful in fundraising.
5. Greater Demand for Alternative Investments: The pandemic has disrupted traditional asset classes such as equities and fixed income. This has led to an increased demand for alternative investments such as hedge funds, which are seen as a way to diversify portfolios and potentially generate higher returns. As a result, hedge funds are likely to see increased interest from investors in the post-COVID world.
Overall, the pandemic has accelerated trends that were already underway in the hedge fund industry, such as the use of technology and the focus on risk management. Hedge funds that can adapt to these changes and meet the evolving needs of investors are likely to be more successful in raising capital in the post-COVID world.
