| Hedge funds pay closer attention to external research |
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| 09/12/2007 | |
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Hedge funds outpace mutual funds in their use of external research, according to new study by Integrity Research Associates. Nearly 45% of all hedge funds claimed to use external sources to help them find good investment research compared to only 13% of the surveyed non-hedge funds. The results are based on a poll of 43 heads of research at US hedge funds and non-hedge fund institutional investors in October. Fifty-three percent of those surveyed worked at traditional long-only firms, while 47% worked at hedge funds. The objective of the poll was to determine how investment firms source the external research they use and how they valued it. Research directors at the surveyed funds were also asked how "confident" they were that they had successfully located the best external research as a part of their investment process. Hedge funds revealed significantly less confidence than non-hedge fund institutional investors, according to the survey. Slightly more than 35% of the hedge funds said they were either extremely or very confident they had identified the best external research as part of their investment process compared to 48% for non-hedge fund institutional investors. In other findings, 87% of traditional asset managers cite salespeople as an important source of research compared to 80% of hedge funds. Meanwhile 26% of long-only asset managers said others within the firm provided a good source of research, below the 30% of hedge fund managers. Overall, the results underscore non-hedge funds' higher complacency and reliance on external research. Heads of research were also asked how regularly they evaluated their external research and once again hedge funds proved to be more vigilant with 63% saying they did so quarterly compared to 35% for non-hedge fund investors. Meanwhile, on the question of research fees, 43% of traditional investors considered what their competitors were paying for various services compared to only 30% of hedge funds who did so. The differences in the findings can be explained by each group's incentives. For hedge funds, increased performance might be generated by finding unique research providers, explains the study, making them more sceptical about the quality of research and less sensitive to the fees paid to attain it and why they evaluate their research more frequently. Long-only asset managers are rewarded primarily for gathering significant amounts of assets under management, which is impacted by a number of factors, including its cost structure relative to assets under management. VB |
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