- Data suggests positive short-term performance and promising long-term positioning for the industry as 75% of investors feel managers met or exceeded performance expectations.
- Managers face pressure to drive inflows and organic growth by exploring new avenues of product and investor diversification, with trustworthy ESG-labeled products a particular area of focus and digital assets yet to pick up momentum.
- Regulatory compliance remains a priority for managers who must address gaps in their compliance and reporting infrastructure to be responsive to the changing regulatory landscape.
EY today announced the publication of the 2022 EY Global Alternative Fund Survey, which offers a comprehensive overview of the perspectives from alternative fund managers and the institutional investors who allocate to them. In its latest edition, the annual survey uncovered that the alternative asset management industry has successfully re-asserted their value over recent years and are well prepared for economic uncertainty that may lie ahead ― causing managers to feel the added pressure of requiring more creative and ambitious tactics for firm differentiation.
“The asset management industry is facing a multitude of headwinds and managers are finding themselves shifting and modernizing, both in terms of internal processes and front-office decision-making,” said Natalie Deak Jaros, EY Global Hedge Fund Co-leader and EY Americas Wealth & Asset Management Co-leader. “Our annual Global Alternative Fund Survey provides the industry with a better understanding of the trends that drive their business.”
The survey highlighted several areas of particular focus for managers looking to drive continued inflows and be better positioned for the future, including:
Seventy-five percent of investors feel that their managers met or exceeded performance expectations during a challenging and volatile market period, successfully protecting capital in down markets while positioning for long-term income generation. The private equity (PE) industry received the greatest feedback, with 50% of investors citing outperformance of expectations, followed by real estate strategies (45%) and real assets/infrastructure (38%). Optimism is not reserved to a short-term view, as findings indicate a significant increase in the number of alternative fund managers taking steps to be well-positioned for the future. Roughly one-third of managers had either recently completed or are considering a transaction like an IPO, M&A or significant debt financing ― and additional data suggests an increased focus on succession planning compared to the results from the 2021 survey.
Managers expect to increase investor mandates by expanding into new asset classes, participating in opportunistic and special situation transactions and launching new fund structures to capture retail inflows. Crossover funds continued to be a major area of focus, as 32% of hedge fund managers increased their exposure to private market investing and more than half (53%) of investors are not limiting their hedge fund managers’ exposure to PE and venture-capital style investments. A double-edged sword of opportunity and complexity remains pronounced within the realms of environmental, social and corporate governance (ESG) investing, as one-quarter of surveyed investors were found to have not invested with a manager in 2022 because of inadequate ESG policies. While the minority of managers believe their ESG reporting and compliance infrastructure needs upgrading or have yet to perform a gap analysis (19% and 16%, respectively), this has been a priority for managers, with 65% reporting that their compliance and reporting infrastructure is well prepared. The ESG-specific findings indicate that managers are responding to the increased investor pressure by changing their approach by developing corporate ESG policies (57%) and are implementing governance structures and embedding ESG into their investment decisions (53%). Exposure to digital assets remains small, as most managers indicated that digital assets comprise less than 2% of their overall portfolios. However, there are signs of growth, as 23% of surveyed hedge funds reported being interested in, or having exposure to, the digital asset space.
The regulatory landscape will continue to shift and evolve, and compliance is expected to be an increasing element of investors’ due diligence. Managers will subsequently need to be more prepared than ever if they’re not to lose out on capital allocations, but it may come at a cost. Forty percent of surveyed hedge fund managers reported that they expect their budget for compliance and/or regulatory processes to increase 5% to 10%, and an additional 18% of managers expect their budgets to increase more than 10%. Meanwhile, 44% of surveyed managers believe the regulatory proposals facing the private fund industry have costs that outweigh the benefits, suggesting that those with small-to-midsized assets under management (AUMs) may be disproportionately affected by this increasing expense.
“While the financial industry has come a long way since 2008, the findings from this year’s Global Alternative Fund Survey suggest that there’s still much to be done if many of these boutique managers are going to be competitive in an industry undergoing increased consolidation,” added Jun Li, EY Americas Wealth & Asset Management Co-leader. “This initiative provides the industry with a fantastic framework to start from and I’m excited to work with our clients on leading practices and transformation efforts going forward.”
The survey, published annually, fielded responses from a global cohort of 226 managers and 61 investors from May to August 2022 and was built in collaboration with Coalition Greenwich.
The complete 2022 EY Global Alternative Fund Survey is available at ey.com/alternativefundsurvey.
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About the EY Global Alternative Fund Survey
The purpose of this study is to record the views and opinions of alternative fund managers and institutional investors globally. Managers and investors were asked to comment on their future and strategies for the decade ahead. Specific topics included industry trends; long-term positioning; talent management; investment products; the regulatory climate and strategic priorities. From May to August 2022, Coalition Greenwich conducted 114 interviews with hedge funds representing more than US$1.7t in AUM and 112 interviews with PE firms representing more than US$2.8t in AUM, and 61 interviews with institutional investors (funds of funds, pension funds, endowments and foundations) representing approximately US$1.3t in assets under management.