Last updated: 08:49 / Thursday, 1 December 2016
EY Study

Changing Investor Preferences are Pressuring Hedge Funds

Changing Investor Preferences are Pressuring Hedge Funds

Hedge fund managers are feeling the pressure from changing investor demands and the managers that adapt accordingly and timely will be the most successful in achieving growth, according to the EY 2016 Global Hedge Fund and Investor Survey: Will adapting to today's evolving demands help you stand out tomorrow?

The 10th annual survey found that hedge fund growth has slowed for a variety of reasons – the abundance of low fee passive investment options, lackluster hedge fund performance and cost concerns. In 2016, the proportion of North American investors that said they were reducing allocations to hedge funds exceeded the proportion that were increasing for the first time since the financial crisis of 2008.

Investors have more options than ever within the alternatives marketplace and are allocating funds to those managers that have a unique offering that is satisfying a specific need. Therefore, hedge fund managers must be at the forefront of actively listening to their investors to keep pace, or else be left behind, the report finds.

Michael Serota, EY Global Leader, Hedge Fund Services, says: "Growth is the industry's top priority, but managers are changing the strategies employed to achieve it. While we find the largest managers pursuing several growth strategies, the smaller managers are more narrowly focused, seeking to expand investor bases within their home markets. Amidst today's challenging environment, it is imperative for managers of all sizes to identify the needs of their clients and align product offerings to their demands."

Other key findings include:

  • Hedge fund managers focus on asset growth to counter reduced inflows
  • As fee pressures increase, managers need to innovate and optimize processes to cut costs
  • Prime brokerages are putting pressure on hedge funds to evolve their relationships
  • Managers are focused on developing their talent management programs, which investors see as increasingly important

The compete survey is available here.