Navigating Launch Challenges in Hedge Fund Management

Join John Jackson, Global Head of Hedge Fund Research at Mercer, and Alan Dunne in this enlightening episode as they dive into the world of hedge fund selection! Discover how a leading institutional consultant selects hedge funds and builds robust portfolios. John shares his insights on why starting with manager selection is key to the portfolio construction process and how he integrates top-down considerations into the mix. The conversation delves into the roles different strategies play in a portfolio, how return expectations are set, and which strategies might thrive in a high-rate, volatile macro environment. John also takes us through Mercer’s rigorous process for researching and selecting new managers, what they look for in a manager, and potential red flags to watch out for. Plus, he sheds light on the importance of emerging managers, the AUM needed for a successful launch, and why he’s passionate about discovering these managers early on. 

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Episode TimeStamps:

02:37 - Introduction to John Jackson

05:40 - A changed environment for hedge funds?

08:42 - Best strategies for a high rates environment

11:50 - Are clients stuck in the past?

13:40 - A framework for building hedge fund allocations

18:13 - More art than science

19:15 - Define your objectives clearly

20:51 - A multi-strat dominance - pros and cons

25:14 - Getting comfort in your hedge fund strategies

28:32 - How to incorporate diversifying strategies in your portfolio

30:48 - How Jackson approaches return expectations

33:13 - Typical number of managers

34:00 - The role of hedge funds

35:44 - Their process of selecting managers

38:56 - What makes an opportunity compelling to them?

43:28 - How they trade in the systematic space

45:10 - Quant managers - are they any different?

47:08 - AI and machine learning in the quant space

49:25 - How important is transparency?

50:54 - Their process of deselecting and changing their manager roster

54:07 - Identifying talents in the manager space

56:18 - How much capital is needed to launch a macro fund?

57:52 - The pros and cons of committees

01:00:21 - Getting through the committee

01:02:12 - Advice for other investors

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