Technology and talent key to hedge fund growth
TORONTO, Dec. 16, 2016 /CNW/ - Hedge fund managers are feeling the pressure from changing investor demands. According to a new EY survey, 48% of investors globally expect to shift their investments from traditional hedge funds to other alternative products over the next three to five years.
"Hedge funds are experiencing slow growth globally," says Fraser Whale, EY's Canadian Alternative Funds Leader. "With an abundance of low-fee investment options and savvy investors pushing for fee transparency, we're seeing a bit of a fight for growth, in Canada, too. Investors have more options than ever in the alternatives marketplace, and fund managers really need to deliver on their investors' concerns to stay competitive."
EY's Wealth and Asset Management Leader, Gregory Smith, interviewed EY's Global Pension and Retirement Leader Josef Pilger, to sum up the insights from the 2016 Alternative Funds Symposium, held on 16 December 2016 in Toronto. Click here to view the video.
According to the EY 2016 Global Hedge Fund and Investor Survey: Will adapting to today's evolving demands help you stand out tomorrow?, in a tough global economy, alternative products go outside the standard hedge fund offerings to provide more yield and diversity to investors.
Technology and data analytics
Managers of all sizes are turning to advanced technology to improve their offerings. According to EY's report, more than half (52%) of managers globally use non-traditional or next-generation data and big data analytics to support their investment process, or plan to do so in the next two to three years. The smallest managers are the most active, with 59% indicating that they use this technology.
"In Canada, we don't see fund managers using data analytics to the same extent, but it is definitely becoming a growing area of focus for them," says Whale.
Costs and increased transparency
Including management fees, the expense ratio is down from 1.95% in 2015 to 1.84% in 2016, but investors feel there is still room for improvement. This is forcing managers to innovate and optimize processes to cut costs – everything from making reductions in the middle or back office, to outsourcing, to using robotics and automation.
"In Canada, CRM2 regulations are bringing the importance of transparency and management costs to the forefront," adds Whale. "It's an opportunity for Canadian fund managers and investors to re-evaluate their value proposition in this new environment and look for opportunities to differentiate how these funds can contribute to overall wealth goals."
Talent as a competitive edge
Developing talent is becoming a competitive edge for hedge funds. According to EY's survey, investors ask for details on hedge funds' talent management programs. In fact, a full 75% of them use this information as a key consideration in their due diligence.
The survey also found that 55% of investors state their primary allegiance is to their portfolio managers, as opposed to firms' founding partners. Therefore, attracting and retaining top talent is key to retaining clients.
"There's no doubt investors look for talented fund managers," says Whale. "But they also want to make sure their investments are taken care of if their portfolio manager leaves the firm. Hedge funds' talent programs need to be robust to remain competitive."
2016 Toronto Hedge Fund Symposium
On 14 December 2016, EY held its 2016 Alternative Funds Symposium, which gathered thought leaders in the hedge fund and investment industry to discuss key issues such as cost constraints, slow growth and alternative investment options.
Read the full EY 2016 Global Hedge Fund and Investor Survey.
About the EY Global Hedge Fund and Investor Survey
The purpose of this survey is to record the views and opinions of hedge fund managers and institutional investors globally on topics including managers' strategic priorities and product demand; cost management; evolving prime brokerage relationships; talent management; data management; and the future landscape of the hedge fund industry. From June to September 2016, Greenwich Associates conducted 100 telephone interviews with hedge funds representing nearly US$1.1t in assets under management. Research also conducted 63 telephone interviews with institutional investors (funds of funds, pension funds, endowments and foundations) representing more than US$1.5t in assets under management, with roughly US$280b allocated to hedge funds. The complete survey is available at ey.com/hedgefundsurvey.
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SOURCE EY (Ernst & Young)