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State Street Vision report examines reinvention in the hedge fund industry

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State Street Corporation has published a new Vision Report examining the re-emergence of the hedge fund industry and the new dynamic between investors, hedge funds, and hedge fund administrators that has emerged to address sweeping regulatory changes and investor demands for enhanced fund transparency, liquidity and efficiency.

According to "Hedge Funds: Rebuilding on a New Foundation", today’s post-crisis environment fund selection will emphasise six critical operational and risk management elements: investment strategy and performance, portfolio liquidity, portfolio transparency, reconsideration of pricing and lockup periods, operational due diligence and the independence of custodians and administrators.

"The theme of transparency in the hedge fund and fund of hedge funds market continues to grow," says Jim Tomeo (pictured), chief operating officer and senior portfolio manager at SSARIS Advisors, LLC, an affiliate of State Street Global Advisors. "Across the alternative investment industry, institutional investors are driving the evolution of all investment channels, from direct hedge fund investment, funds of funds, to managed accounts and other structures. Improved investor sentiment and positive inflows suggest reviving confidence across the board."

The Vision report is broken into three main sections:

Technology with a Purpose: The Next Generation Today — Discusses the integration of risk and return technology by investment service providers to address asset managers and asset owners’ growing need for more detailed portfolio analytics, process transparency, risk management and dashboards to improve the speed and kind of information they are receiving and their access to it.

Using Technology to Adapt to the New Regulatory Environment — Examines the review of electronic trading by regulators following the start of the financial crisis in 2008. Technology has been at the forefront in enabling the exponential growth of electronic trading and has become the only solution to effectively meet the challenges inherent in new trading regulations.

Portfolio Allocation and Modelling — A Technological Arms Race? — Explores technology’s solutions to meet today’s leading global asset management challenges, including market crowding, pricing inefficiencies, risk and rebalancing.

"Institutional investors are increasingly taking great interest in how hedge funds manage operational infrastructure, choose administrators and provide for governance and best practices," says George Sullivan, executive vice president and head of State Street’s alternative investment solutions group. "Escalating client demand for operational control and transparency is driving funds to outsource many responsibilities to administrators experienced in all asset types and investment strategies. By hiring administrators to assume a range of services, including data management, asset class coverage and portfolio risk analysis, fund managers can concentrate on generating alpha and distributing investment products."

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