Hedge funds operating in the US are bracing themselves for increased scrutiny, following the comments made by US Securities and Exchange Commission (SEC) Chair, Gary Gensler, at the Institutional Limited Partners Association (ILPA) Summit earlier in November 2021. The regulator chair outlined plans to enhance reporting and disclosures, and keeping close watch on the way private funds charge investors and measure performance.
By Angele Paris – Hedge funds operating in the US are bracing themselves for increased scrutiny, following the comments made by US Securities and Exchange Commission (SEC) Chair, Gary Gensler, at the Institutional Limited Partners Association (ILPA) Summit earlier in November 2021. The regulator chair outlined plans to enhance reporting and disclosures, and keeping close watch on the way private funds charge investors and measure performance.
Regulations and compliance in the industry
Within this context, the support offered by service providers is imperative. Their assistance can help hedge funds and broader alternative investment managers ensure accuracy in compliance and reporting, while allowing for smooth client relations. This is increasingly relevant given the current climate of enhanced demands for transparency and communication.
Matthew Brown, Global Head of Business Development, Waystone, winner of Best Offshore Regulatory and Compliance Firm for the eighth year running, notes how the industry as a whole is seeing increased regulatory complexities. This, in turn, is driving governance, risk and compliance requirements.
Hedge fund performance
However, despite the rising regulatory and administrative burdens, hedge funds have had a robust year.
Jay Peller, Head of Fund Services, Citco Fund Services, winner of Best ESG Solution, outlines how the data collected by Citco on hedge fund performance shows how the funds have proven their worth during the pandemic.
This has led to growing appetite on behalf of institutional investors, with hedge fund assets under management hitting USD4.3 trillion in the second quarter of 2021, according to data from BarclayHedge.
ESG and sustainable investing
Sustainability is an area which is in sharp focus and quickly becoming part of the investment fabric. A study by BNP Paribas finds 40 per cent of participants integrate ESG into their investment process, and that this is primarily driven by their investors. “While investor demand is crucial, there is also growing internal commitment from senior management,” the paper details.
Looking to the future
Looking ahead, Philitsa Hanson, Global Head of Transformation at Linedata, this year’s winner for Best Trading Technology, predicts transparency and disclosure will grow beyond regulation and become integral to an investment firm’s brand and identity.
Hanson notes: “Firms are investing in practices that are increasingly critical to their successful operations: data transparency, like with ESG, cybersecurity efforts, risk management practices and communication with clients and investors.”
Further to this, Armel Leslie, Partner at Peaks Strategies, winner of Best PR and Communications, believes that, over the next 12-18 months, signs are pointing to continued AUM growth for the industry, and investors (both institutional and retail) will require the diversification that alternatives provide.
“While the large, established players will continue to gain market-share, there are always opportunities for niche players to emerge and succeed, and we enjoy working with some of the more off-the-run managers (alternative) that are introducing new strategies into the market and/or innovating and finding new ways to capture alpha,” Leslie says.
According to the Deloitte 2022 Investment Management Outlook, “Progress toward quantifiable and transparent business metrics can help firms achieve a higher bottom line, financially and socially.” The report further concludes that firms using technology to better engage with clients and deliver on their expectations are likely to be more successful going forward.
