ValueWalk’s interview with Robert Vanderpool, the President of InfraHedge North America. In this interview, Robert discusses his and his company’s background, the relation of InfraHedge with State Street Corporation, hedge fund fee trends, the 2/20 model, the difference in fee negotiations between small and large hedge fund managers, lowering fees and hurdle rates, and the involvement of the SEC.
Can you tell us about your background?
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Rob is the President of InfraHedge North America and has over 18 years’ experience in the financial services and asset management industry. He leads our business development, product development and relationship management functions globally.
Prior to joining InfraHedge in 2018, Rob was in the Chief Investment Office as Head of Investment Product at Northern Trust responsible for over $280b of Northern Trust’s investment platform. As Head of Investment Product, Rob was in charge of the construction and management of the Investment Platform including internal and external investment manager products. In addition, Rob previously was Global Head of Valuations which entailed in depth credit research, financial modelling and quantitative analysis to Equity, Fixed Income and Alternative portfolio Managers.
Rob sat on the firms’ Investment Advisory Committee, Investment Governance Committee, Centrally Managed solutions Committee, ESG Council and Commissions & Trading Committee.
Previously, Rob worked at PIMCO on the Fund Statistics team in Newport Beach, CA and III / AVM, a $5.2B hedge fund invested in fixed income arbitrage, long/short credit and tail hedging and volatility strategies.
What about your firm InfraHedge?
The InfraHedge platform is built on principles of neutrality and open architecture for a wide range of hedge fund strategies and managers chosen by an investor. Our managed account infrastructure is specifically designed for institutional investors who wish to create their own Separate Account or Managed Account programs. Managed Accounts are steadily becoming an investment structure of choice for institutional investors and allocators as they increase their hedge fund exposure. Enhanced transparency, control and independent governance combined with bespoke liquidity and investment terms are proving increasingly attractive. The InfraHedge team specializes in building and operating industrial strength infrastructure solutions for institutional investors in hedge funds.
What is the relation to State Street?
The InfraHedge product is offered by State Street Managed Accounts Services Ltd, a subsidiary company of State Street Corporation (NYSE:STT) and part of its Alternative Investment Solutions Group.
Let's talk hedge fund fee trends - what are you seeing?
We continue to see fee compression so the demands and pressure from investors continue to have hedge fund managers offer compelling fee structures to adhere to these demands. Equilibrium has yet to be met by managers / investors therefore concessions are made wherever possible.
Are we ever going to return to 2/20?
The 2/20 model can exist for managers that achieve and have demonstrated a consistent alpha track record but with the continued pressure from investment boards, investors will always negotiate fees wherever / whenever possible.
The sense I am getting is that smaller funds even with strong returns have less flexibility with fees than big-name especially those top performers what do you think?
Yes, without the proven track record that is gained overtime from more established hedge fund managers, emerging managers are not positioned well for fee negotiations so in these incidences, fees are generally the focus at the beginning of the provider discussions.
Some funds are charging zero management fees and higher performance fees - the criticism is that it is hard especially on the lower end to operate like that - what are your thoughts?
Yes, but the inventive to produce alpha is front and center and if alpha is achieved, fees are paid and capital is deployed for operating the fund.
What about hurdle rates i.e. 30% fee on all returns above 6% - it seems to be a great way to align incentives with fees - why are they not more popular?
There’s several ways to lower fees and hurdle rates is one of them so I wouldn’t say they are popular or not as there is not public data to state the current market position.
As pensions (especially public) need to come up with more bang for their buck do you think we will see further pressure on fees?
There will always be fee pressure as the investment teams servicing pension have a fiduciary responsibility overseeing the public plans assets and with that is governance around fees, so will always be a part of the discussions.
Do you see any role for the SEC here?
SEC governance has been a long debate since GFC, so hedge fund managers have been engaged and await the outcome / involvement of the SEC. Being private markets, the debate is around how much proprietary information and data can be shared is the true debate at hand.