More than half (57 per cent) of institutional investors plan to narrow down the number of different alternative asset managers they work with in the next 12 to 24 months, according to a survey by UBS Fund Services and PwC.
The survey reveals that they intend to focus on fewer key relationships as they gain increasing expertise in the sector. A higher proportion of institutional money in alternative asset classes is also leading to more rigorous selection of managers.
Mark Porter, head of UBS Fund Services, says: “Institutional investors are demanding more transparency and increased liquidity from their alternative asset managers. With institutional money now accounting for 80 per cent of the hedge fund industry, for example, they will continue seeking greater transparency over how performance is achieved and how risks are managed, leading to increased due diligence requirements for alternative managers.”
The investors surveyed were satisfied with tailored solutions provided by alternative managers and with governance, but remain concerned about operational technology, reporting, fee structures and transparency.
Porter says: “Technology will play an increasingly differentiating role for alternative asset managers, as reporting and portfolio management will have to become more sophisticated to comply with regulatory requirements. New regulations are expected to accelerate demand from investors for real-time data tools to manage risk. We expect access to portfolio-level, real-time data to become the norm.”
Looking at regulation, 83 per cent of European insurers interviewed expect the Solvency II Directive to have negative consequences. Its increased governance, disclosure and data requirements are leading insurers to review their alternative investment strategies. Some are changing the way they gain exposure to alternatives to lower their capital charge – for instance by replacing real estate funds with direct investments and joint ventures. Beyond Solvency II, 75 per cent of survey respondents judged the impact of other new regulations to be neutral. AIFMD is perceived as a potential competitive advantage for EU alternative managers in taking market share from non-EU counterparts.
Olivier Carré, partner at PwC, says: “The evolving regulatory environment creates opportunities for alternative managers who can be creative in offering clients solutions rather than products. Such solutions will require greater expertise in client servicing and technological acumen, thus alternative managers need to invest in staff who are capable of addressing investors’ needs.”