Welcome to the inaugural edition of the Hedgeweek end of year editorial report: Reflections on 2015. We are excited to bring to you, our readers, what we hope will be the first of many such annual reports. In this first edition you will find a wide selection of some of the most important articles that Hedgeweek has put together throughout the year, which best serve to illustrate key developments shaping the global hedge fund industry; all neatly packaged and presented. Xmas has indeed come early!
The hedge fund industry has undergone an incredible transformation in recent years. Fund managers have embraced what were first felt as regulatory headwinds and used them as tailwinds to redefine the way they run their business activities. Not only has this vastly improved the level of transparency, compliance and overall operational infrastructure – satisfying investors and regulators alike – it has allowed hedge fund managers to branch out and bring regulated funds to market, in tandem with their offshore vehicles.
This has led to the incredible rise to prominence of liquid alternatives. Morningstar estimates that this segment of the market recorded an asset increase from USD27billion in 2008 to USD304billion in 2014, with the number of funds increasing over the same period from 482 to 1,569. Looking ahead, a report by PwC – Alternative Asset Management 2020: Fast Forward to Centre Stage – estimates that liquid alternative UCITS funds could see their AUM double to USD664 billion by 2020.
Regulation has also increasingly pushed hedge funds to consider offering AIIFMD-compliant funds to European investors. As such, the role of the Alternative Investment Fund Manager (`AIFM') has become vital, prompting an array of fund management groups and compliance firms to bring an outsourced AIFM solution, principally to support non-EU managers. This underscores the unique ability of this industry to continuously evolve and innovate in the face of what was, at the time, a burdensome piece of regulation.
Inside, readers will find an insightful piece from Fuchs Asset Management on the role of the AIFM, whilst under the `Risk Management' section, Duff & Phelps' Kinetic Partners outline how AIFMD has mutated risk management.
Indeed, regulation is a common thread throughout this report. From compliance and reporting, to building best workflow practices and developing an effective marketing and distribution strategy, regulatory considerations are never far away.
The issue of cybersecurity has been another important trend in 2015. The report features an excellent piece on this topic by Richard Fleischmann & Associates, a leading New York-headquartered technology firm. On 22nd April, the House of Representatives passed a new cybersecurity bill – the Protecting Cyber Networks Act (PCNA) – to allow file sharing between government intelligence agencies and private companies and raise the overall awareness of hacking.
With more hedge funds becoming the victims of social engineering, understanding some of the practical steps to stay cyber secure can no longer be overlooked.
So. Time to light the fire. Pour a glass of mulled wine. And see what's inside.
Thank you readers, and have a prosperous 2016.
James Williams
Managing Editor, Hedgeweek
