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Here’s Why The Canadian Hedge Fund Industry Is So Small

This article was published by Business in Canada and is reprinted here with permission.

Business in Canada recently had the opportunity to interview Richard Taglianetti, a giant in the hedge fund universe who has raised millions of dollars for start-up managers over the course of his career. At present, Richard serves as the senior managing director of hedge funds at Corinthian Partners, where he connects institutional investors on both sides of the Atlantic with emerging managers who have logical, scalable processes and strong track records, to boot.

During the interview, we discussed the challenges facing the Canadian hedge fund industry and why its size pales in comparison to the United States and the United Kingdom. Consider this: the population of United States is roughly ten times that of Canada, but its hedge fund managers oversee roughly 45 times the assets. At the end of 2012, Canadian hedge funds managed about $35 billion while their counterparts in the United States had a cumulative AUM of over $1.5 trillion. In light of this vast discrepancy, Richard concluded that “there’s definitely something holding the Canadian hedge fund industry back.”

Shortly thereafter, Richard was kind enough to follow up with Business in Canada, sending an email in which he outlined a few things that are inhibiting the growth of hedge funds in the Great White North.

  • Underperformance

As Richard previously told us, “Performance is a magnet for assets.”  Unfortunately, in 2012, Canadian hedge funds did more to repel than attract investors.  As a whole, the industry gave back 5 percent last year, far underperforming the TSX, which advanced by 4 percent.

  • The End Of The Commodities Supercycle

Before ‘tapering’ became part of Wall Street’s lexicon, investors were rebalancing their portfolios in accordance with the notion that the commodities supercycle was drawing to a close.  Richard believes this development had a particularly deleterious effect on resource-focused managers in Canada.

  • The Cost Of Accessing FundSERV

FundSERV is an online hub that connects and facilitates transactions between funds, distributors, and intermediaries. Membership in this network doesn’t come cheap.  According to Richard, these costs unduly burden smaller managers, which reduces the size of the pool of managers in Canada. In addition, this restricts a hedge fund’s access to high net worth investors, who provide the vital money needed for expansion.

Richard is quite open to working with Canadian managers, saying, “If there was a team in Canada that is performing, I would love to talk to them.”  But after 13 years of putting out global searches for managers, only a handful of Canadians have answered his call. 

Author: BiC Editorial Board