Alternative investment firms have evolved tremendously over the course of the last 20 years, particularly since the financial crisis. But has the magic formula for success changed in that time? This is a key question that EY and the Alternative Investment Management Association (AIMA) address in this research report.
What we have found confirms that some fundamentals are timeless – the need to invest in people and business infrastructure, for example, or the value of growing your relationships with your clients, the funds’ investors. We have learned that some facets of a successful firm have clearly evolved in recent years, in particular around transparency and the construction of sustainable, long-term businesses.
For a hedge fund business, as much as any other business, success is in large part driven by articulating a clear message in advance, delivering what you have promised and doing so reliably over time. This applies to relationships with both investors and staff, in which alignment of interests (financial and philosophical) and culture emerged as critical factors in our survey.
Our interviews with successful individuals in the industry clearly show that it continues to evolve rapidly. In part, this reflects the growing maturity of individual firms, their desire for continuity and their need to retain as well as attract investment capital. It is also a response to changing market conditions, such as low yields and the secular reduction in financial market liquidity.