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Investors are leading the way in shaping the future of the alternative investment industry, according to a soon to be published global survey by State Street
1, in collaboration with Preqin*, of nearly 400 leading alternative fund managers from hedge funds, private equity firms and real estate funds. “The Next Alternative: Thriving in a New Fund Environment” finds that fund managers see investor demands for greater transparency, more favorable fees and greater liquidity at the fund level as three of the top five drivers of change over the next five years.
“Alternative asset managers that want to create a competitive edge need to balance meeting new requirements from investors and regulators while ensuring operational and performance excellence,” said George Sullivan, executive vice president and global head of State Street’s Alternative Investment Solutions. “The mainstreaming of this asset class debunks common misconceptions that have hindered opportunities for investors and fund managers alike.”
Some of those common misconceptions about the alternative fund industry are:
Alternative fund managers have been reluctant to offer greater transparency into fund performance and risk
Reality: Managers are reporting more information to investors, more frequently. Forty-four percent of fund managers have increased the amount of information they report on their holdings, risk and performance since 2008 and an additional 16 percent plan to do so over the next five years. Almost one third (32 percent) have increased their reporting frequency since the financial crisis. Capturing, structuring and reporting data “on demand” for stakeholders will give managers a clear advantage as investor demand for greater transparency in risk and performance was the most cited driver of change in the alternative fund industry today.
Misconception: The era of major change in the alternative sector is largely finished
Reality: Growing competition means that alternative fund managers are reassessing their fee structures and seeking ways to differentiate their offerings with new product and investment strategies. Twenty-nine percent of alternative fund managers surveyed indicated they planned to add new investment strategies with in-house resources over the next five years, while 25 percent said they have done this since 2008.
Misconception: Alternative industry regulation is stifling growth and innovation