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New warning over hedge fund capacity – report

GLOBAL – Hedge fund executive Mark Yusko has warned about capacity in the hedge fund market, according to a newswire report.

Yusko was quoted by Reuters as saying that the industry is attracting a “flood” of people eager to collect billions of dollars in new money to earn fees.

Yusko is the former chief investment officer of the University of North Carolina who set up Morgan Creek Capital Management in 2004.

"Look for people who are in the business to make returns, not gather assets,” he was quoted saying at a hedge fund conference organized by Reuters. “We tend to look for people with a little gray hair or a little less hair."

There was a “supply-demand imbalance” where some managers getting capital are “less good". The best funds were now closed, which was “one of the challenges facing this business."

There was not enough talent to absorb the billions of dollars that pension funds, endowments and charities were putting into hedge funds.

A lack of capacity has been flagged as a possible drag on hedge fund performance by, among others, Roger Urwin, global head of investment consulting at Watson Wyatt.

But others, such as French business school Edhec, maintain there is no proof of a ‘capacity effect’ in the industry.

Reuters also quoted GAMCO Investors’ chairman Mario Gabelli as telling the event that there will be more hedge fund “blowups”.

Earlier this week the Dutch financial regulator AFM said it was concerned about hedge funds’ lack of transparency.

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