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Ernst & Young Releases Global Hedge Funds Survey

Ernst & Young has released its sixth annual survey of the global hedge fund market, ‘Finding Common Ground.

The survey (compiled by Greenwich Associates for E&Y) interviewed 100 hedge fund managers who manage over US$710 billion, and 50 institutional investors with over US$190 billion allocated to hedge funds.

Highlights… 

  • Investors and hedge fund managers have made little progress in reconciling their opinions of how compensation should align with risk and performance. In 2010, 94% of managers felt risk and performance were effectively aligned with investor objectives, while 50% of investors felt the same. In 2012, the ratios are 87% (managers) and 42% (investors).
  • Investors identify the investment team (82%), risk management (70%) and investment philosophy (66%) as the three most important initial screening criteria.
  • Managers overwhelmingly (86%) cite performance as the primary reason for redemptions.  However, while investors (86%) also see this as important, they are almost equally inclined (84%) to take their assets elsewhere when there are changes in key personnel.
  • Nearly two in three hedge funds have either added headcount in the front- office or expect to in the near future. A number of hedge fund managers say hiring has been opportunistic, particularly given the upheaval at banks.
  • Almost 45% of hedge funds are adding headcount in support functions – middle-office, back-office, risk management, and legal/compliance.  Over half of managers are making technology investments in risk management, compliance, and investment management systems.
  • Investor support for emerging and start-up funds is increasing. But, there is an accompanying squeeze on margins, most notably from funds of funds, who are demanding and getting a variety of concessions from fund managers, particularly on fees (95%), and often in return for larger mandates (83%) and lock-ups (56%).


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