Investors demand more transparency as alternatives surge

Research carried out by the Economist Intelligence Unit showed transparency is growing in importance for both traditional and alternative investments.
By Paul Walsh
The advent of alternative investment has led to investors demanding more information on investment vehicles, underlying assets and other risk management data, latest research has shown.

Research carried out by the Economist Intelligence Unit, and sponsored by Northern Trust, revealed that a higher level of scrutiny is being applied to both traditional and alternative investments including hedge funds and private equity investments.

A survey of 200 asset managers and institutional investors conducted in February revealed the “degree of transparency” was cited as very important by 63% for alternatives and 62% for traditional investments, putting it ahead of all other considerations.

The survey also revealed risk management is the most important driver for transparency in both traditional and alternative investments.

Nearly three quarters of respondents said portfolio risk management was the most important element while 53% cited regulatory requirements and 43% cited competitive considerations.

When asked how approaches to transparency changed since the financial crisis, with 21% saying their transparency was a key issue among traditional asset managers and 17% for alternatives. This compared to 9% and 3%, respectively before the crisis.

The research concluded there was no consensus around which department within an organisation ensures that existing and potential investments are adequately transparent.

“These results tell us that investment transparency is a growing priority, but asset managers and institutional investors remain unsure of how to best achieve it,” said Pete Cherecwich, president of corporate and institutional services at Northern Trust.

“As alternative investing has reached the mainstream, the industry would benefit from consistent standards and stronger policies around transparency. Working with the world’s most sophisticated investors, we are committed to enabling greater transparency through continued research and technology development.”