Global hedge fund and investor survey 2012

Evolving fund of funds business model

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Investors are allocating more to small and new managers; funds of funds are demanding and getting concessions, particularly on fees.

Investor support for emerging and start-up funds is increasing. However, there is an accompanying squeeze on margins, most notably from funds of funds managers, who are demanding and getting a variety of concessions, particularly on fees (95%). The concessions are often in return for larger mandates (83%) and lock-ups (56%).

This belies conventional wisdom that the largest managers are gathering all the assets. More particularly, a significant majority of funds say that they are investing in a “fund of one.” Both these trends attest to a thriving and continually reinvigorating industry.

It is difficult to assess whether there is a causal relationship between this trend and a squeeze on margins, but it appears to be the case that fund of funds are receiving significant concessions from fund managers.

Investors:

Has a hedge fund offered fee breaks in return for concessions on your part?

Chart: Has a hedge fund offered fee breaks in return for concessions on your part?

Investors:

If yes, what concessions did you have to make for lower fees?

Chart: If yes, what concessions did you have to make for lower fees?

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