The report, entitled ‘Institutional Hedge Fund Investing Comes of Age: A New Perspective on the Road Ahead’, indicates a need for hedge fund managers to enhance their risk management infrastructure and risk reporting, and institutionalize transparency policies to attract new capital, satisfy anxious investors, and protect their reputations.
The study also revealed the importance of fund managers clearly articulating how their investment strategies add value to investors’ portfolios, which presents an opportunity for managers to differentiate themselves through market-leading client service, reporting, and education.
The study results found that institutional investors’ confidence in hedge funds is growing, as more than half (54%) of all survey respondents said they plan to increase target allocations over the next 12 months.
That confidence is conditional, however, as the demand for increased transparency and risk management were recurring themes throughout this year’s study.
The focus on risk management infrastructure emerged as the second most important hedge fund selection criteria this year, with 75% of respondents deeming it ‘very important’.
Notably, it was not among the top 10 selection factors in SEI’s report last year. Only clarity of investment philosophy ranked higher than risk management, with 79% deeming it ‘very important’.
Transparency is still a concern, as more than two-thirds (70%) of those polled pointed to a lack of transparency as their biggest worry, up from 56% in 2009.
As for the types of information sought, more than three out of four respondents want risk analytics from managers – a category of information that didn’t even appear in the top 10 last year.
The report also noted that investors are not relying on regulation to improve hedge fund disclosure, liquidity, or risk management.
