A report released recently from State Street highlights the changes taking place in the global alternative investment industry, including hedge funds. Particularly noteworthy in the survey of hedge fund managers is the view that hedge fund investors are drivers of change, including a push for greater transparency, regulatory scrutiny, and more favorable fees.
The report, which State Street conducted in collaboration with industry data firm Preqin, surveyed 391 alternative asset managers, including 186 from the hedge fund sector. Other managers represented the private equity and real estate sectors. Hedge fund managers reported that, in response to investor needs for new products and fee structures, a number of product and investment changes have been made. Hedge fund managers noted that they are offering managed accounts, new investment strategies with in-house resources, changing their fee structure, and expanding into new regions.
Managers are also providing more information to their investors while making a number of risk and operational changes in recent years. These steps include reporting more information to investors on holdings, risk, and performance; using an independent administrator; reporting more frequently to investors on investment holdings; and using new techniques to assess performance and risk relative to their peers.
Hedge fund managers identified fundraising as the biggest challenge over the next five years. They also listed generating performance, adapting to regulations, preserving margins, and finding skilled staff as challenges facing the industry.
Data from Preqin shows that 87% of investors plan to either invest more capital or invest the same amount of capital with hedge funds over the next 12 months. Furthermore, nearly all institutional investors interviewed by Preqin from June to August said that regulatory changes and proposals would have no impact on their hedge fund allocations.
Read the full report and access additional materials such as videos and infographics, online, from State Street.