A prominent Sydney hedge fund manager has joined a ‘big four’ professional services firm, in a new role assisting all kinds of asset managers to cope with debts and shrinking fee revenues, or to wind up their funds.
In November 2008, David Cambridge, formerly a director with Sydney-based hedge fund Prodigal, approached Deloitte with a message from the frontline of the crisis: an opportunity existed for the firm to provide a corporate recovery service for hedge funds and boutiques.
This would involve helping managers restructure their business, meet debts, cut fat in their budgets, enter a merger or, if all else failed, steer them through insolvency.
Cambridge now works as a contractor with Deloitte’s 180-person corporate reorganisation group.
The universe of financially-stressed funds managers is expanding: after incurring investment losses, most hedge funds, boutiques and larger managers are experiencing cuts in management fees.
And since many hedge funds are well below their high-water-marks, these managers will only be able to remember what it was like to earn performance fees for some time ahead.
Cambridge already has a few clients and some insights into the scope of work available.
While many hedge funds already ran lean and were in control of their costs, they would become panicked if they fail to remain solvent.
“Some are going to find it extremely difficult to keep going. Even if they have positive performance, investors are still redeeming to gain liquidity,” Cambridge said.
He said that consolidation in the funds management industry, as a result of financial pressures, was likely.
“We can help hedge funds reduce costs and stabilise, or get them ready for sale or for someone wanting to take a stake in their fund.”
Falling revenues and mounting debts would be experienced not only by funds managers, but right across the financial services industry, including financial planning dealer groups, Cambridge said.
For now, the pain was most evident among hedge funds and boutiques.
Due to some hedge funds’ outperformance relative to equities, they were experiencing liquidity pressures as investors, including hedge funds-of-funds, had redeemed investments.
Meanwhile, Prodigal, a $40 million multi-strategy hedge fund focused on Asian markets, was not actively looking for a replacement for Cambridge but would be open to a talented candidate joining the business, according to Mike Munns, managing director.