AIMA, EY Release New Survey

February, 2017

Three key characteristics are essential for firms seeking success in the hedge fund industry: investing in people, sound business infrastructure and a focus on relationships with their investors, according to a global survey of senior individuals in the hedge fund industry by EY and the Alternative Investment Management Association (AIMA), the global representative of alternative investment managers.

With the aim of identifying common characteristics of successful hedge fund managers over time, strategy and geography, EY and AIMA spoke with 40 highly experienced, senior individuals at hedge fund management firms in the US, the UK and Asia-Pacific. The collective assets under management of the firms totalled over $100bn, ranging from $100m up to $15bn per firm.   

The findings point to the development of an industry that is increasingly aware of its reliance on retaining talent at all levels of the organisation in order to lock in best performers, give continuity of service to clients and have a solid workforce of dedicated staff who have a vested interest in the success of their firms.

Similarly, hedge fund firms are increasingly conscious of the need to focus on customer relationship management – with investment in better understanding clients’ needs and aims, as much as consistently strong performance, now seen as crucial to longer-term industry success.

Dan Thompson, partner in EY’s financial services practice commented: “The hedge fund industry has been through a period of challenging market conditions and changing client profile recently and it’s interesting to hear what the industry thinks will be the key factors to achieving success going forward.  Pressure on returns alongside a shift to an institutional client base (with less focus on HNWIs) has necessitated a change in approach and attitude.  The experts that we and AIMA spoke with were right to highlight the three focuses of people, infrastructure and a focus on clients – for long-term success hedge funds need to focus on more than just fund performance and it’s good that the industry is recognising that.”

Additionally, transparency, delivery and consistency were common themes across all three geographic areas.  

Mr Thompson added: “It seems that for a hedge fund, 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, where alignment of interests (financial and philosophical) and culture emerged as critical factors. The evolving demands of a sophisticated investor population is making it increasingly hard for good performance to hide any shortcoming in these other factors, in particular over the long-term.”

The survey also highlighted an increasing onus within firms on the need for sound operational infrastructure in order to build stable and sustainable businesses.  Managers say they are looking to create businesses capable of attracting and retaining talent and surviving and thriving into the long term.

AIMA’s CEO Jack Inglis said: “Our interviews show that the hedge fund industry continues to evolve rapidly.  In part this reflects the maturity of individual firms, their desire for continuity and their need to retain investment capital as well as being able to attract it. Further, it is a response to changing market conditions, such as low yields and the secular reduction in financial market liquidity.

“The adaptability of the hedge fund industry is one of its great strengths.  Our research makes it clear that successful hedge fund firms are already responding to the changing demands being placed on them. The growing focus on transparency and alignment of interest are two examples of this willingness to evolve.”

Mr Inglis added: “As they develop, hedge fund managers’ views of success will no doubt continue to evolve.  The ability to manage that process of change will be critical.”