Hedge Funds are Not Dead, but Expectations are Toned Down
Despite common misconceptions, the hedge fund market has fared relatively well throughout the financial crisis, according to a new Impact Note from Aite Group.
“Hedge funds have become part of the fabric of the investment management business, and will remain so going forward. Nevertheless, changes should be expected. Incentive fees may decrease, weaker players will fall by the wayside, and regulation will certainly increase. The prime brokerage business is likely to be permanently altered, but the effects felt by the hedge funds they service will be minimal.”
One outcome from 2008 will be a redefinition of investor expectations for hedge funds. Hedge fund investors were promised good absolute performance, not strong relative performance. In last year’s market, this was simply not possible.
A few more highlights:
- Hedge funds can expect to focus on internal processes and control, oversight, documentation, technology for automation, and information capture and reporting.
- The prime brokerage business may well be in a more turmoil then hedge funds. For the first time, newer prime brokers, non-U.S. prime brokers and mini-primes have the potential for a bigger allocation of the revenue pie.
- Global custodians and hedge fund administrators are gainers in the new environment. As end-clients of hedge funds conduct more invasive due diligence and more aggressively push their agenda in disclosure, operational control, valuation,product pricing and client servicing, third-party service providers have an improved opportunity to sell their products and services.
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