The Hedge Fund Industry Landscape in 2015-2016
In the last few months a number of heavyweight reports have been released by consulting firms, assessing the hedge fund business environment in 2015-2016 and recommending business imperatives to be taken by managers.
Although the fund of hedge funds model is in demise, direct hedge fund investment continues to rise and hedge funds continue to attract funds from institutional investors, with total industry AUM around $3 trillion.
PwC expect to see greater segmentation, as hedge funds focus on specific investor channels, tailoring products and distribution to those channels, whether pension funds, SWFs, endowments or private investors. This will drive the evolution of the firm, with some explicitly deciding to become diversified alternative managers, some specialist managers and others multi-strategy. In order to finance growth, some will partner with other institutions, sharing expertise and distribution capability.
KPMG see a continuing shift of emphasis by hedge funds in favour of serving institutional, rather than individual, investors. This will quicken the trend towards customisation of products. Most respondents to the latest KPMG HF survey expect that, by 2020, institutional investors will account for at least 75% of new capital flows to hedge funds. Almost 40% of respondents would soon have a UCITs offering, and over 25% a 40-Act fund.
Towers Watson’s painting of the Hedge Fund landscape is aimed at asset owners making direct investment in hedge funds. It describes the buoyancy of the Alternative UCITs market, where institutions are now the dominant investors, due to solvency and regulatory requirements. But growth is not without its issues. Other key topics considered include portfolio construction and manager selection. The authors suggest that many allocators appoint an unnecessarily large number of managers. There is little further diversification benefit after the first 10-15 managers; indeed the greater the number of managers, the more difficult it is to maintain an obsessional focus on selecting skilled managers.
Deloitte’s 2015 Alternative Investment Outlook highlights trends in the Hedge Fund industry. The survey highlights that institutional investors are increasingly taking equity stakes in the funds in which they invest. The report majors on three themes; Globalisation, Monetisation and Management of Brand Risk. It argues that: i) hedge fund firms must think globally to remain relevant, ii) monetisation of funds is ongoing as founders retire or raise capital for growth, iii) in an era of instant communication and social media, brand risk must be tightly controlled to avoid a disaster due to an operational, regulatory, or technological mistake.
Recommended list of 2015 Hedge Fund industry surveys
PwC consider the likely changes in the alternative asset management industry landscape over the coming years and identify six key business imperatives.
Based on a survey of over one hundred hedge funds and exploring investment compliance, hedge fund product design and hedge fund marketing. The report suggests that as fee and fund structures become increasingly customized, hedge funds will position themselves more and more as solution providers.
Towers Watson, 2015 The Hedge Fund Landscape in 2015
Our most read hedge fund report, providing practical advice and analysis for institutional investors investing in hedge funds. Issues covered include managed account structures, alternative UCITS funds, shifts in the fee model and factor replication.
Getmansky, Lo and Lee, 2015 Hedge Funds: A Dynamic Industry in Transition
Another widely read paper. The authors argue that apparent hedge fund returns are halved by survivorship bias and backfill bias. Andrew Lo, Mila Getmansky and Peter Lee present a selective review of recent academic literature, together with their own updated empirical results.
This 12 page document from Deloitte highlights trends in the Hedge Fund industry. The survey highlights that institutional investors are increasingly taking equity stakes in the funds in which they invest. Deloitte's 2015 Alternative Investment Outlook focuses on three key areas; Globalization, Monetization and Strategic Brand Risk Management.
This 12 page report is based on a State Street survey of 235 hedge fund executives. It suggests key steps that hedge funds should take in order to be leaders in 2020.
This 60 page analysis argues that regulation is becoming the key driver of change in the hedge fund industry. Issues examined include the exit of proprietary trading talent from the sell-side; the impact of increasing AUM at hedge funds, and the increasing cost of financing due to Basel III.
Detailed report, exploring why institutional investors have emerged as the industry’s main source of capital and how this is changing key structural aspects of the hedge funds industry.