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January 3, 2006
Hedge funds become more accessible
Hedge funds, previously unconstrained investment vehicles for risk-takers and the super rich, are becoming an institutionalised part of the mainstream asset management industry as pension and insurance funds bump up their allocations to these funds.
The profile of hedge fund investors is shifting towards institutional funds on the hunt for higher returns, according to a survey of more than 70 UK hedge fund managers by Kinetic, an investment management consultancy.
David Butler, founding member of Kinetic, said: "More new money is coming from institutions than elsewhere and they are allocating significant sums to hedge funds. The era of the high net worth investor is fading as institutions become the main investors."
Institutions on average make up between 10 and 35 per cent of investors in any one fund, said Butler, but managers expect that proportion to increase to at least 25 per cent in the next year and then gradually supplant the money invested by fund of funds and private investors.
The survey suggested that as the investor profile changes, hedge funds themselves will become more institutionalised, spending more money on IT, compliance and trading platforms to meet demands from institutional investors for more risk-management infrastructure. A number of hedge fund houses have created a new post of "chief risk officer".
Respondents said competition to recruit talented individuals was also forcing up costs. Kinetic said: "These factors are believed to be the principal inhibitors of growth."
Hedge fund managers said they expected the more aggressive fee structures found in the US, for example 3 per cent annual management fees and 30 per cent performance fees, would spread to the UK but there would be some resistance from investors.
Rising costs are making it increasingly tough for small hedge fund managers, said Kinetic, which interviewed 20 leading hedge fund management houses including Man Group, Vega Asset Management, Marshall Wace and Gartmore.
The majority of respondents noted that large hedge fund managers with a track record are finding it increasingly easy to launch and raise money for new funds. However, small, new funds are finding the opposite.
The survey said that there was a general consensus that new funds had to reach $50 million to be commercial.
At the same time, more than half of respondents said that it was becoming increasingly hard to differentiate themselves from each other as competitors flooded into the market and returns reduced.
Kinetic Partners is a joint venture between Chiltern, a tax and wealth management firm, and former financial services partners from consultancy RSM Robson Rhodes.
-Gulfnews.com-
Posted by su at January 3, 2006 11:49 AM