2012 Trends in the Alternative Investment Industry
|January 31st, 2012||
|Contributed by: Shane Brett, Global Perspectives|
|This White Paper identifies the main trends taking place in the Alternative Investment industry in 2012. It will look in turn at Hedge Fund Managers, Administrators, Institutional Investors and Fund of Hedge Fund Managers.|
Hedge Fund Managers
• 2012 is expected to be the most promising year for the Alternative Investment industry in 5 years. Growth in net inflows is expected from Institutional Investors, particularly Pension Funds.
• An increase in allocations to smaller and medium size Hedge Fund Managers is expected in 2012.
• Hedge Fund Managers will continue to evolve fund offering, launching more managed account type funds for sophisticated large investors while also allowing retail investors more access to their funds.
• 2012 is expected to see an increase in the launch of new hedge funds in the market.
• Hedge Fund Managers will see a continued focus by their investors on Risk monitoring and reporting. Detailed Due diligence will remain as a central issue for many investors.
• Assets are more likely to be rotated between managers in 2012 as investors move their capital to new better performing funds and strategies.
• Brand and reputation will continue to remain important for Hedge Fund Managers hoping to raise additional or new capital from investors.
• The Administrator space in 2012 will continue to see recognition of the increased importance of administrators in the industry.
• Administrators are continuing to broadening their services in response to investor demands. Those likely to prosper will offer an expanded, flexible and granular service offering. The outsourcing of middle office services to Administrators is a growing trend.
• Investors in 2012 will continue to demand more bespoke-type funds (e.g. growth in platforms, Managed funds etc), which in turn requires administrators to be more flexible in their offering.
• This shifting investor base (now approx 60% of Hedge Fund Investors) and the on-going regulatory environment is driving demand for administrators (especially from the US market).
• Both investors and fund managers need increased transparency and more detailed operational risk reporting from their administrators. Administrators are focusing on building transparency reporting (e.g. which show “% priced by Administrator/Investment Manager” and “% of liquid investments”).
• Administrators are being required to show they can work on a 24 hour worldwide basis (e.g. centers of excellence in India send reports to Europe which are reviewed and then sent to US East Coast investment Managers for 9am).
• The rising cost of regulatory compliance, enhanced offering and IT systems is leading a trend towards consolidation in the administrator market. This also means Technology is an issue as administrators need more specific Fund of Fund and Hedge Fund software in the future to satisfy managers and investors. Many Hedge Fund and FOF Managers increasingly want to bundle administration, custody and financing with a single provider, benefiting larger administrators.
• 2012 will see increased scrutiny of administrators from Hedge Fund Managers/Investors including more due diligence of their processes, controls and reporting. This will Increase the importance of the due diligence process to administrators in general as hedge funds/FOHF becoming more institutionalized (e.g. UCITS IV)