A survey of nearly 400 alternative fund managers has found that of the 86% of them who expect their costs to increase over the next five years, largely driven by regulation, 75% are optimistic that this will not constrain their growth potential.
This debunks the misconception that alternative industry regulation is stifling growth and innovation. In reality, notes the survey, although burdensome for many, the new era of heightened regulation is also creating opportunities for managers to distinguish themselves from peers and tap into investor appetite for increased transparency and oversight.
The State Street survey, in conjunction with Prequin, focuses on nearly 400 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.
Other findings of the survey include:
“Misconception: 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%) 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. 29% of alternative fund managers surveyed indicated they planned to add new investment strategies with in-house resources over the next five years, while 25% said they have done this since 2008
“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.”
75% of Alternative Fund Managers Say Regulation Will Not Constrain Growth Potential
A survey of nearly 400 alternative fund managers has found that of the 86% of them who expect their costs to increase over the next five years, largely driven by regulation, 75% are optimistic that this will not constrain their growth potential.