BOSTON--(EON: Enhanced Online News)--Investors are leading the way in shaping the future of the alternative investment industry, according to a soon to be published global survey by State Street1, in collaboration with Preqin*, of nearly 400 leading alternative fund managers from hedge funds, private equity firms and real estate funds. “The Next Alternative: Thriving in a New Fund Environment” finds that fund managers see investor demands for greater transparency, more favorable fees and greater liquidity at the fund level as three of the top five drivers of change over the next five years.
“This survey highlights key changes that are coinciding with the growth and maturation of alternatives as an asset class and offers a glimpse into what the next five years will look like for the industry”
“Alternative asset managers that want to create a competitive edge need to balance meeting new requirements from investors and regulators while ensuring operational and performance excellence,” said George Sullivan, executive vice president and global head of State Street’s Alternative Investment Solutions. “The mainstreaming of this asset class debunks common misconceptions that have hindered opportunities for investors and fund managers alike.”
Some of those common misconceptions about the alternative fund industry are:
Misconception: Alternative fund managers have been reluctant to offer greater transparency into fund performance and risk
Reality: Managers are reporting more information to investors, more frequently. Forty-four percent of fund managers have increased the amount of information they report on their holdings, risk and performance since 2008 and an additional 16 percent plan to do so over the next five years. Almost one third (32 percent) have increased their reporting frequency since the financial crisis. Capturing, structuring and reporting data “on demand” for stakeholders will give managers a clear advantage as investor demand for greater transparency in risk and performance was the most cited driver of change in the alternative fund industry today.
Misconception: The era of major change in the alternative sector is largely finished
Reality: Growing competition means that alternative fund managers are reassessing their fee structures and seeking ways to differentiate their offerings with new product and investment strategies. Twenty-nine percent of alternative fund managers surveyed indicated they planned to add new investment strategies with in-house resources over the next five years, while 25 percent said they have done this since 2008.
Misconception: Alternative industry regulation is stifling growth and innovation
Reality: Although burdensome for many, the new era of heightened regulation is also creating opportunities for managers to distinguish themselves from peers and tap into investor appetite for increased transparency and oversight. Of the 86 percent of alternative fund managers who expect their costs to increase over the next five years, largely driven by regulation, 75 percent are optimistic that this will not constrain their growth potential.
“This survey highlights key changes that are coinciding with the growth and maturation of alternatives as an asset class and offers a glimpse into what the next five years will look like for the industry,” continued Sullivan. “Managers who remain innovative as they respond to demands from investors will be positioned for success in this new era where investors will look to employ alternatives more commonly than ever before.”
Important trends and possible shifts in the industry over the next five years include:
Regional expansion: Nearly one in five fund managers (18 percent) surveyed plan to expand into new regions by 2018
More managed accounts: More than one in four (26 percent) have introduced managed accounts in the past five years, and another 18 percent plan to do so by 2018
More hybrid funds: A majority of respondents (58 percent) say that hybrid alternative fund structures, which blend features of traditional hedge fund and private equity vehicles, will increase over the next five years
M&A activity is set to increase: 10 percent of fund managers plan to acquire another business in the next five years; this compares to 7 percent who have already done so in the past five years
For further information on the study and to view the executive summary, please click here. For special materials and other information, follow State Street on Twitter @State Street.
About State Street Corporation
State Street Corporation (NYSE: STT) is one of the world's leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $25.7 trillion in assets under custody and administration and $2.1 trillion in assets under management* at June 30, 2013, State Street operates in more than 100 geographic markets worldwide, including the U.S., Canada, Europe, the Middle East and Asia. For more information, visit State Street’s web site at www.statestreet.com.
* This AUM includes the assets of the SPDR Gold Trust (approx. $37 billion as of June 30, 2013), for which State Street Global Markets, LLC, an affiliate of State Street Global Advisors, serves as the marketing agent.
1 State Street, in collaboration with Preqin, a leading research consultancy focused on alternative asset classes, conducted a survey, examines the current state and future outlook for the global alternative fund management industry. Conducted in July 2013, The survey garnered 391 responses from alternative fund managers globally: 55% North American; 29% European; 10% Asia-Pacific and 6% other