Amid the rapid growth of the hedge fund industry and the complex regulatory climate following the financial crisis, hedge fund managers and institutional investors have differing views on transparency and independent controls, according to a new survey by Northern Trust.
An overwhelming majority of managers (90 per cent) believe that all or nearly all of their investors are satisfied with the level of transparency they receive. However, about half (55 per cent) of investors say they seek higher levels of transparency than they currently receive.
Investors place such value on transparency that many are willing to pay for it. Among those investors who desire more transparency, 78 per cent say they would accept a 1-to-3 basis point increase in management fees to support the operational costs for such reporting.
Regarding the issue of independent controls, there is a perception gap between the level of independent oversight investors value and the controls managers actually have in place.
• While 96 per cent of investors indicate independent verification of cash processing is extremely or somewhat important, only 44 per cent of managers say they have independent controls on cash.
• Additionally, 43 per cent of investors say independent checks on portfolio risk calculations are extremely important, yet only 13 per cent of managers employ such independent controls.
“Despite the ongoing push for transparency, a majority of hedge fund investors are still seeking more insight into their investments,” says Peter Sanchez, CEO of Northern Trust Hedge Fund Services. “Bridging the transparency gap goes beyond costs. It requires a balance where investors get the reports they need while managers retain ownership of their unique strategy. We believe providing insight into risk is one approach to bridging that gap.”
