Hedge fund client base switches to institutions, says IAM
The main client base of hedge funds is now institutional rather than private, according to Morten Spenner, chief executive at International Asset Management.
As a result, Spenner says there will be less appetite for leverage, structured products and Madoff club-type deals. There will be a continued ongoing industry institutionalisation with increased professionalism and greater use of standards/systems.
In addition, hedge funds and fund of hedge funds are becoming more process driven.
Spenner says "There has been less crowding of hedge funds as many market participants have exited/scaled down. Prop desks exits and hedge fund closures have increased opportunities for remaining risk takers. There is less leverage in the system, hedge funds see less need for leverage to meet target returns and providers are offering less."
Hedge funds are increasingly reviewing their fees, says Spenner: "So far, high quality managers are only reducing fees if clients accept less liquidity. We expect to see fund of hedge funds fees more closely mirror client risk appetite and investment time horizon going forwards."
IAM expects to see more regulatory scrutiny of the hedge fund industry.
Spenner says: "Most hedge funds welcome registration with their local regulator and granting more transparency on activities.
"Post 2008, there has been a greater focus on how to access hedge funds. Clients are now more focused on the advantages and disadvantages of their method of investing. This includes better matching of liquidity between clients and the terms from invested funds as well as heightened transparency."
Spenner adds that significant inflationary and deflationary forces, the impact and withdrawal of government intervention, evolving debt levels and protracted economic recovery will lead to an environment of higher than average volatility as well as valuation anomalies and trading oriented markets.
“This market outlook is ideally suited to hedge fund managers who are best able to extract value from markets affected by significant uncertainly."
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