Hedge Fund Investors Survey

Hedge Funds Investors Survey

Investors Staying with Hedge Funds but Have More Demands

Hedge funds are having little trouble keeping investors despite 2008's heavy losses, but investors are demanding more from managers.  A recent survey (SEI's "The Era of the Investor") showed that although 80% of surveyed investors plan to keep their money with hedge funds and 15% plan to up their allocations in the next year, a high majority of investors are asking for more information and greater transparency from the funds they invest with.

More than 70% said they are asking for more specific information from managers and over 80% said they are focusing on the funds' valuation methods.  As we've previously noted, there is still a push by investors for a reform of the typical 2 and 20 fee structure but it remains to be seen whether managers will budge on this issue after the best year's performance in a decade. 
"Investors remain committed to hedge funds but that commitment comes with increased expectations," said Phil Masterson, Managing Director for SEI's Investment Manager Services division. "The balance of power has clearly shifted and managers must meet the growing demand for transparency and increase their focus on operational effectiveness if they want to be successful in this 'Era of the Investor.'"

With respect to manager selection, institutional investors are even more focused on a manager's ability to identify and clearly explain the alpha source from which the performance is derived.

For hedge fund managers, the survey clearly points to the need to focus on the fundamentals as they face greater scrutiny and demands from investors.  The survey reveals that investors are concerned with issues such as liquidity risk, valuation methodology, and whether performance characteristics are in line with stated strategies.  It also points to institutional investors' willingness to look beyond short-term performance and focus on other traditional indicators of quality, such as a firm's management team, investment process, and operations and compliance infrastructure.   Source

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Tags: Hedge fund investors, survey of investors, hedge fund investors survey, hedge fund limited partners, hedge fund institutional investors, pension funds, high net worth individuals

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