To Boost Confidence, Funds-of-Funds Revisit Fees

In their attempts to mend the “rattled” investor trust in the alternative space, funds-of-funds managers are planning to utilize transparency and examine their fee structures moving forward, a new study claims.

A “Call to Action,” a new survey by Rothstein Kass, found more than half of the 103 fund managers interviewed expect increased competition from single-manager vehicles. Additionally, 45% expect greater competition from institutional investors replicating funds-of-funds.

“The institutional investment community’s trust in the alternative investment sector has not been shattered, but it’s fair to say it has been rattled,” said Jeff Kollin, director, financial services practice of Rothstein Kass Business Advisory Services.

As a result of this increased gung-ho atmosphere, funds-of-funds firms expect to respond by replicating strategies. Specifically, roughly 60% said they would increase transparency and nearly 58% said they would consider lowering fees “in exchange for longer investment lock-up periods.”

Additionally, the survey, conducted with Infosurv, found FoFs are also mulling over increasing liquidity options and changing their fund administrators, custodians and/or auditors and legal counsels.

“Funds-of-funds managers are finding that institutional investors are placing a greater emphasis on due diligence processes,” said Howard Altman, co-CEO and co-managing principal of Rothstein Kass. “By continuing to act institutional themselves, funds-of-funds can provide a window into their operating environment to restore investor confidence and effectively compete with single manager vehicles and funds-of-funds replication strategies that are more aggressively pursuing institutional assets.”