| Investors to push hedge fund compliance controls in 2008 |
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| 31/12/2007 | |
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Transparency in the hedge fund industry in 2008 is more likely to be driven by stricter compliance controls mandated by investors, according to a study by Rothstein Kass. The firm reported this and other findings following telephone interviews with 301 senior partners at hedge funds that had track records of at least five years and assets under management of at least $100m. About two thirds of the partners represented funds which have $100-750m in assets, while the remaining third had total assets under management in excess of $750m. "It's interesting to observe that the vast majority of hedge funds surveyed do not anticipate additional regulatory oversight," says Howard Altman, CPA and Co-Managing Principal at Rothstein Kass. "If this is the case, it appears that the next push for industry transparency will come from mainstream financial institutions that will demand more detailed and thorough compliance from the firms to which they commit their capital." Only 5.7% of surveyed funds with assets under $750m expect increased governmental regulation of the industry compared to 14.7% for bigger funds. Firm size also had a strong impact on how respondents viewed fund-raising, the potential for capital market transactions and the outlook for consolidation. M&A Firms with higher fundraising goals were far more likely to expect increased M&As among small hedge funds. More than 35% of those with more than $750m in assets under management expect hedge funds to increasingly get involved in private equity transactions compared to 24.5% of those in the smaller group. When asked whether financial institutions will increasingly buy hedge funds, 81.7% of those in the bigger group responded very or extremely likely compared to 59.4% of those in the smaller group. An average 32.9% of both groups expect M&A activity among smaller hedge funds to significantly increase. Smaller-sized hedge funds are less concerned about the rising costs of their operations with 34.4% expecting an increase in costs compared to 60.6% for bigger funds, according to the survey results. In other findings, nearly a third of the partners polled anticipate hiring a CFO in the next three years, suggesting that competition for qualified individuals will be intense. Of less concern to respondents was the search for institutional investors. Only one-third of respondents cited future difficulty in that area, as most large hedge funds and endowments work with consultants to source investments "Across the board, there was concern about continuing to deliver the investment results their clients expect," concludes the report. "About 60% of senior partners expect fewer opportunities to generate alpha in the coming three years." VB |
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