Increase In Hedge Fund Shareholders Fuels IRM Market

Stakeholder numbers, both individual and institutional, in alternative asset vehicles are expected to rise 210% in the next five years, spurring a corresponding demand for new software and technology to manage investor relationships, an investment research firm predicts. Carbon360 Research,

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Stakeholder numbers, both individual and institutional, in alternative asset vehicles are expected to rise 210% in the next five years, spurring a corresponding demand for new software and technology to manage investor relationships, an investment research firm predicts.

Carbon360 Research, a research and consulting firm focused on the investment management services industry, estimates that the total number of alternative and separate managed account shareholders will grow from 13.3 million shareholders in 2005 to 41.2 million in 2010.

“Investment managers are facing increasing external pressures, such as more stringent regulatory requirements, and suitability and accreditation tests,” said Brian Shapiro, president of Carbon360. “With SEC registration, managers are required to create, retain and submit information related to their business practices, clients and adherence to regulatory requirements,” he said.

To meet this need to improve client servicing Carbon360 suggests Investor Relationship Management (IRM) software, which only 5% of investment firms use.

The research group estimates that the average hedge fund manager must contend with 460 shareholders between an estimated three funds (LP, Onshore and Offshore feeders). Assuming each client service inquiry costs $50 per hour and each client makes 12 inquiries annually that equals $276,000 client service dollars annually to respond to client requests.

“As much as 60% in cost reduction can be made on statement production time and ad-hoc Excel-based report creation with the deployment of an IRM application,” Shapiro said. As the regulatory environment becomes increasingly complex, asset managers of all sizes must document every aspect of their investment management operations. IRM software helps with this by collecting, centralizing, and storing all necessary data points.

“The pace of change in the asset management industry and recent hedge fund failures, and the risk of new ones, are behind investor operational risk and fraud concerns,” Shapiro said. “The application of an IRM system to help govern fund and separately managed account tracking and due diligence functions could be of tremendous value,” he added.

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