Waiting around for the dust to settle is not the usual approach for Gregg Hymowitz, the chief executive of EnTrustPermal, a Legg Mason affiliate specializing in managing funds of hedge funds.
This approach is why he’s taken a proactive stance helping activist investors finance large stakes in companies. This involvement in activist co-investments came as performance in the hedge fund sector was challenged by a lack of volatility stemming from central bank policies that have inordinately influenced financial asset prices in recent years.
Many sectors may have benefitted from the ensuing stability that low interest rates have helped to foster, but not the hedge fund industry. It tends to thrive in more volatile markets, but with fewer ups and downs for managers to exploit, performance struggled, bringing with it increased investor scrutiny of fees and expenses. As a result, more hedge funds closed last year than opened—a first for the industry—and many others merged.
Yet the sector had arguably become crowded—experiencing rapid growth from around 500 funds in 1990 to nearly 9,000 by the end of 2015—so the introspection and rationalization that’s taking place now could actually be a positive development—and it’s one that Hymowitz won’t be watching, but actively leading.