10 Nov 2011
Hedge fund managers and investors globally disagree in some important areas, according to Ernst & Young’s latest annual survey. The survey pinpoints differences on governance, fund expenses,administration, succession and capital raising.
The report shows that only 45% of investors described their funds' boards of directors as very effective at carrying out their duties to funds. In contrast, almost 70% of managers feel the board is very effective.
Although the majority of both groups agreed that administrators have a positive impact on investor confidence, 74% of investors said that it is important that a hedge fund completely outsources valuation to an administrator. However, 71% of the managers asked perceived risks in this.
Ernst & Young found that managers and investors disagreed as to what costs should be passed through. Although 76% of investors wanted shadow accounting, only 35% were willing to pay for it.
The study indicated that two-thirds of investors felt that having a well articulated succession plan was important to their investment decisions. Managers appeared to under-estimate the importance with only 38% agreeing that this plan is important to retaining investors. Over half of the managers included in the study believed investor loyalty lies with the founding principals. However, 55% of investors said their primary loyalty is to individual portfolio managers.
The report documents a lack of clarity between investors and managers about the loss of mandates. Almost 40% of managers said they did not really know why they lost a mandate while the investors expressed concerns about risk management policies, inconsistency of information presented and lack of an independent board or administration.
The report, entitled Coming of Age, polled 92 hedge fund managers who manage some $600 billion, and 42 institutional investors with over $130 billion allocated to hedge funds. It was compiled by consulting firm Greenwich Associates for Ernst & Young.
of hedge fund managers and 36% of investors.
The report shows that only 45% of investors described their funds' boards of directors as very effective at carrying out their duties to funds. In contrast, almost 70% of managers feel the board is very effective.
Although the majority of both groups agreed that administrators have a positive impact on investor confidence, 74% of investors said that it is important that a hedge fund completely outsources valuation to an administrator. However, 71% of the managers asked perceived risks in this.
Ernst & Young found that managers and investors disagreed as to what costs should be passed through. Although 76% of investors wanted shadow accounting, only 35% were willing to pay for it.
The study indicated that two-thirds of investors felt that having a well articulated succession plan was important to their investment decisions. Managers appeared to under-estimate the importance with only 38% agreeing that this plan is important to retaining investors. Over half of the managers included in the study believed investor loyalty lies with the founding principals. However, 55% of investors said their primary loyalty is to individual portfolio managers.
The report documents a lack of clarity between investors and managers about the loss of mandates. Almost 40% of managers said they did not really know why they lost a mandate while the investors expressed concerns about risk management policies, inconsistency of information presented and lack of an independent board or administration.
The report, entitled Coming of Age, polled 92 hedge fund managers who manage some $600 billion, and 42 institutional investors with over $130 billion allocated to hedge funds. It was compiled by consulting firm Greenwich Associates for Ernst & Young.
“The recovery of the hedge fund market has been encouraging, but as the industry comes of age, investors are getting increasingly interested in governance and supervision where there remains considerable gaps in perception and in reality,” said Ratan Engineer, global leader of Ernst & Young’s Asset Management practice. “To continue satisfying investor demands and foster compliance, we need to ensure that hedge fund investors and managers are on the same page.”Despite several opinion gaps, investors and hedge fund managers agree on several things. Especially notable is their top concern, namely, the impact of regulation, which was cited as the chief worry of 48%
of hedge fund managers and 36% of investors.
