Business Rationale
In the previous two decades, BlackRock’s hedge-fund model was based in part on allowing its long-only managers to start alternative strategies. After Carl Eifler was named the head of its direct hedge-fund business in 2013, BlackRock has focused on creating bigger funds. It has also filled gaps by adding event- driven and credit strategies.
Some have been top performers. The $1.8 billion European hedge fund has gained 27.2 percent through October, the investor document showed. That’s more than quadruple the return for HFRI Western/Pan Europe Index.
The $2.1 billion flagship global fixed-income fund, called Obsidian, has outpaced a comparable HFRI benchmark in four of the past five years.
“BlackRock is one of the few long-only firms that has succeeded” in building a hedge-fund business, said Don Steinbrugge, managing partner of Agecroft Partners.
Despite those successes, traditional asset managers like BlackRock may still face an uphill battle winning over skeptical hedge-fund investors.
Uphill Battle
Long-only shops have traditionally struggled to win over clients because of nagging worries that they don’t have the expertise to consistently win by shorting, a common practice used to betting against securities, according to Jason Kephart, an alternative funds analyst at Morningstar Inc.
And even if performance holds up, there’s the risk they won’t be able to reward those who run in-house hedge-fund strategies enough to keep them from being poached or setting out on their own.
Generally, “what really trips up long-only managers that try to get into it is the shorting,” Kephart said.