Global hedge fund and investor survey 2012
Capital investments, fees and expenses
There is disagreement between hedge fund managers and investors about who should pay for transparency-related costs.
Increased regulation and compliance requirements are forcing firms to make big investments in headcount and technology. Nearly half of hedge fund managers say the cost of doing business has increased in the past year.
Moreover, over half of managers are making technology investments in risk management, compliance and investment management systems. Investors generally agree with these outlays. Two-thirds of investors say that their managers need to invest in risk management technology, and nearly 60% say their managers need to spend on investment management systems. However, while investors are demanding more transparency from hedge fund managers, they also expect hedge funds to cover the costs.
See the chart on this page for all the ways hedge fund managers and investors differ on the responsibilities for costs.
Nearly two in three hedge funds have either added headcount in the front office or expect to in the near future. Almost 45% of hedge funds are adding headcount in support functions to meet expected growth, client demands for transparency and increased regulatory requirements.
Over half of managers report making technology investments related to risk management, compliance, and investment management systems – a decision widely supported by investors. Other significant investments involve sales support systems and client reporting.
Costs of transparency
While investors demand more transparency, there is sharp disagreement between hedge fund managers and investors about who should pay for transparency-related costs. More than two-thirds of managers pass on the cost of Directors and Officers liability (D&O) insurance, as well as regulatory registration and compliance, to the fund, while over half of investors say it is unacceptable to do so.
Likewise, while nearly 90% of hedge funds perform shadowing and nearly all investors believe shadowing is critical for accurate valuation and reporting, only half of investors feel it is worth the cost if they have to pay for it. Interestingly, pension funds and endowments are more likely to say the benefits outweigh the costs than do funds of funds investors.
Which of the following costs do you currently pass on to the funds?
Which of the following costs should management fees cover/not pass on to the fund?