CEO Conversations
Resilient Industry: Hedge Funds
Meshing Business with Markets
Tenth in a continuing series
By Lisa Schroder, Markets Editor
with Russell Jones, Financial Writer
Kevin Quirk, partner, of Casey Quirk & Associates, a management consulting firm, discusses how the firm interacts with the hedge fund industry."Forethought and prudence are the proper qualities of a leader."
- Tacitus
Casey Quirk & Associates, a management consulting firm, is located in Darien, Connecticut, part of Fairfield County.
What attracted the firm to this particular location? Casey Quirk’s predecessor organization—Rogers Casey—had many Fortune 500 clients.
Between Fairfield and Westchester Counties, “they probably had the headquarters to maybe half of the Fortune 500 companies in a nice 60-mile or 100-mile radius. Connecticut was a very central location to the business that they were doing.” The firm remains today. “Part of it is the heritage of our company, but another part of it is very pragmatic: for our clients,” says Kevin Quirk, partner, Casey Quirk & Associates. “We have very much a global industry. We have clients in New York, Boston, Chicago, California, London, Tokyo, Hong Kong. Connecticut is a nice place for the partners to live—and our ability to get to New York City, the airports, to get up to Boston very quickly makes it kind of a perfect place to be.”
And of course the hedge fund industry, in particular, has migrated to this area.
He acknowledges the important role the Connecticut Hedge Fund Association (CTHFA) plays in helping investors and representing the industry.
“Given the privacy and sometimes the opaqueness, the lack of understanding of the hedge fund industry, groups like the CTHFA are doing extremely important work to help the broader public and government really get a better understanding of hedge funds. Our firm has gotten much more involved in working with hedge funds and fund of funds (organizations that basically pool multiple hedge funds into one product or vehicle), by conducting research and publishing reports on fund of funds and institutional demand for hedge funds,” he notes.
Hedge funds have become a very important subsegment of the investment management industry, says Quirk, who illustrates how the firm interacts with the hedge fund industry.
The firm comes at the business from two different angles.
“First, by working directly with hedge funds and fund of funds to help them enhance their businesses, and second, by working with more traditionally oriented firms who are trying to become more alternative or “hedge-fund-like.” When asked about “blowups” in the industry, Quirk points out that for every Amaranth, there are probably a good four or five hedge fund managers that have a much lower-risk approach.
“They’re not taking exorbitant leverage or putting exorbitant leverage into their portfolios. They’re not making bets in extremely volatile markets and levering those bets,” he says. “Plenty of hedge funds take a much more measured approach to risk, and their targets frankly are to deliver something more like an 8 to 9 percent absolute return, which is simply what a lot of institutional investors are looking for,” he adds.
Quirk emphasizes that he thinks the industry is actually quite resilient and that it is here to stay.
“If you go back to the ‘80s and ‘90s when equity markets were delivering a 20 percent return and bond markets were delivering an 11 percent return, a traditional portfolio, on average, would give you 15 or 16 percent a year.”
Now, he says, that same portfolio might give you 5.5 to 6 percent a year, underscoring the need for “skilled managers who can get you to a better number—it doesn’t need to be 15 percent, but it probably needs to be 8 or 9 percent.”
Hedge funds are where the greatest innovation has occurred and where, says Quirk, some of the greatest skill exists to deliver those type of returns and take in the appropriate amount of risk.
“We think that is by far the most important driving factor to what would be still very, very high growth in the hedge fund industry as well as a sea change in the way that investors think about putting their portfolios to work.” He sees the future of the industry being about much bigger institutions.
“Pension plans, for example, are going to play a much, much bigger role. Hedge funds and the fund of funds have to think about what capabilities they are going to need to do business with these types of organizations—quite different than the type of investors they’ve been dealing with historically,” says Quirk.
“Our view is that this part of the market is going to be not only substantial, but probably the majority of the net flows that come into the hedge fund industry over the next five or so years.”
