Citco and HFM Global Find that Nearly Three-Quarters of Hedge Funds are Introducing New Fee Structures to Satisfy Investor Demand

  • The Citco Group of Companies and HFM Global have conducted an extensive survey of hedge fund management firms from around the world about their distribution strategy
  • Of 225 responses, 72% of global hedge funds are creating new fee structures, 20% of managers say transparent managed account structures are now their biggest source of inflows, 60% of managers now offer investors customised portfolios, and 41% of managers are looking to diversify into a new strategy over the next year.

This research has revealed a hedge fund sector evolving at pace to meet the increasingly demanding needs of allocators.

NEW YORK--()--The Citco Group of Companies (“Citco”) and HFM Global today released the findings of one of the most extensive surveys of hedge fund management firms, in which hedge fund managers were asked about their distribution strategies. The research reveals the huge impact investor pressure on fund charges is having on hedge fund firms, with 72% saying they are implementing new fee structures to satisfy this demand.

“Investors have been demanding an increased alignment of interest on fees for some time and this research reveals the huge number of managers who have been listening and, more importantly, acting.”

The research also finds that managed account structures, which offer investors increased control and transparency, are now the biggest source of inflows for 19% of managers. This number rises to 28% among US managers.

Only half of managers say traditional onshore/offshore hedge fund strategies are now their biggest source of inflows. Interestingly, 13% of managers say alternative UCITS funds are their biggest source of inflows, compared to only 4% who say the same about US alternative ’40 Act Funds, which have been hit by negative investor sentiment over the past two years.

Customised portfolios are now provided by 60% of hedge fund firms, with nearly a third of managers (30%) offering special liquidity terms to attract new investors.

The research also shows a sector hungry to diversify into new strategies, with 41% of managers looking to move into a new strategy in the next 12 months. Long/short equity is the most favoured diversification route (17%), followed by CTAs (11%) and global macro (8%).

In terms of favoured sources of distribution, private bank platforms are seen as the most effective way of generating inflows, with an average favourability score of 3.02 out of five, followed by UCITS platforms, with a score of 2.91, and managed account platforms, with a score of 2.89. Cap intro was judged less effective than any of the platform routes, scoring 2.72, with third-party marketers receiving the lowest average score with 2.49 out of five.

The majority of managers (62%) do not outsource any part of their distribution function, preferring to keep things in-house. UK-based firms appear to be more open to it, with 42% of managers saying they would consider outsourcing distribution.

Greg Fenlon, Head of Alternative Investor Services at Citco Fund Services (USA) Inc., said: “The hedge fund industry is at a key inflection point. Facing mounting investor pressures and a sustained period of muted performance, it is critical that hedge funds understand how to effectively raise money in this challenging environment. We are constantly in dialogue with clients who are evaluating their fee and fund structures as they figure out not only how to navigate the current landscape but also how to evolve in order to meet investor demands and attract capital. By leveraging our deep industry knowledge, expertise, and high-touch relationships with clients, our research with HFM Global exposes unprecedented insights into firms’ fundraising processes, revealing an industry that has a bullish confidence in the future as well as keen awareness of the need to adapt across the board.”

Paul McMillan, head of editorial content at business intelligence network HFM Global, said: “Investors have been demanding an increased alignment of interest on fees for some time and this research reveals the huge number of managers who have been listening and, more importantly, acting.

“We have been talking to a range experienced managers in recent months who have been introducing new fee agreements, often with lower management fees and higher performance fees that are subject to a hurdle. Certain investors feel these type of structures better align the interests of the allocator and the management firm by rewarding genuine outperformance and not sub-par returns.”

For a full copy of the report Hedge Fund Distribution Trends Survey 2017 please contact distributionsurvey@citco.com.

About Citco Group of Companies

The Citco Group of Companies is a worldwide network of independent financial service companies serving the world's elite hedge funds, private equity and real estate firms, institutional banks, Global 1000 companies and high net worth individuals. Citco companies service these sectors in their respective geographic areas by offering hedge fund administration, custody and fund trading, financial products and corporate and trust planning solutions. Citco has offices in over 40 countries with more than 6,000 staff.

About HFM Global

HFM Global is a membership organisation with six business intelligence networks focused on different areas of the hedge fund sector: HFMWeek, CTA Intelligence, Alt Credit Intelligence, HFMTechnology, HFMCompliance and HFM Investor Relations. Alongside regular print and online content, the networks run a range of networking and professional development events across the US, Europe and Asia.

Contacts

For Citco:
Paul Caminiti / Elizabeth Smith
Sard Verbinnen & Co
+1-212-687-8080 / +44 (0)20 3178 8914
or
For HFM:
Paul McMillan
Head of editorial content
+1 646 891 2118
P.McMillan@hfmweek.com

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