While fees and transparency are still topics of concern for institutional investors, a new study claims that there has been shift in uneasiness toward the alternatives vehicle, with many enlisting some of their trust back into hedge funds.
In a new “Hedge Fund Investor Spotlight,” Preqin, a London-and New York-based research firm, explained that nearly 60% of respondents to its August survey believe that there has been a change in terms that have benefited investors. Also, roughly 7% feel the swap has shifted to benefit the favor of the manger as well.
“This is a positive development for the asset classes, which over the past two years has been met with much questioning as well some dissatisfaction from the institutional marketplace,” the firm said in the study.
Of the 45 institutional investors surveyed, the eight-year old alternative focused firm explained that management fees have “been the most improved aspect…over the past 12 months.”
According to the results, nearly half of the respondents agree that management fees are now more acceptable, with 38% stating that they have successfully negotiated better terms with fund managers. This denotes a 7% rise from last year’s posting. Alternately, 26% stated that there has been shift in performance fees charged by hedge fund firms as well.
Furthermore, the institutional class also revealed that there is “still room for improvement” when it comes to transparency and liquidity. The study’s findings conclude that roughly 47% are looking for more appropriate lock-up periods, and 42% are seeking more frequent redemptions.
“With such a high proportion of investors refraining from investing due to lack of transparency (48%), it is vital that mangers are able to provide their investors and potential clients with as much information on their funds’ sources of returns as possible,” the eight year old firm said in the report.
Over the next year, the firm predicts that the discord between performance and management fees, and transparency will continue to be hot button items.
“Investors still value returns and track records as vital criteria when selecting funds; however, as Madoff proved, high performing “black box” strategies may not be what they seem, so the institutional market is becoming much more stringent in looking for transparent sources of alpha,” the spotlight study highlighted.
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