North American hedge fund managers are trying to pass increasing costs along to investors, a new survey from Ernst & Young (E&Y) finds.
The results of the survey, which was carried out by Greenwich Associates on behalf of E&Y, found that almost 60% of hedge funds are facing increased costs. And, most of them, 68%, are passing along these costs to investors, up from 34% in 2011.
“There will continue to be a greater push and pull on this issue of cost allocation for the foreseeable future as investors increasingly show less appetite for costs to be charged to the fund than they did a year ago,” notes says Joseph Micallef, financial services partner and Canadian asset management industry tax leader at E&Y. “We don’t see this trend changing unless funds greatly improve investment performance returns.”
“With the cost of doing business increasing, and investors not ready to foot the bill, conditions are ripe for a perfect storm. There are more barriers to entry for startups, and we’re seeing consolidation among those that don’t yet have capital to support investment in new infrastructure,” adds Micallef. “But, while the storm is likely to persist in the short term, there are still investments to be found. Managers who are creative about where they seek these untapped investment capital dollars will thrive.”
The survey also reports that investment performance is not investors top consideration when deciding whether to invest with a particular fund, or pull out.
“Long-term performance is only the fourth most important criteria for investors, after the investment team, investment philosophy and risk management policies,” says Micallef. “Compared to 2011, both long-term and short-term past performance declined in importance for the investor community.”
For the survey, Greenwich interviewed 100 hedge funds representing over US$710 billion in assets under management, and sought the views of 50 institutional investors representing over US$715 billion in assets under management.