As the hedge fund industry matures, most managers are increasingly focused on growth, according to EY’s seventh annual survey of the global hedge fund market.
However, the survey shows that while managers want to grow through new products and distribution channels, institutional investors aren’t necessarily planning to increase their investments.
“Managers are bullish about their growth prospects, but investors don’t seem to share that sentiment,” says Joseph Micallef, financial services partner and Canadian asset management industry tax leader at EY in Toronto. “Our survey found the majority of investors — 72% — expect to maintain their current allocation levels.”
Exploring pathways to growth also finds that as investor and regulatory demands grow, managers are focusing relentlessly on operational efficiency and costs in the battle to maintain margins.
“Two in three managers reported an increase in revenues over the past year, as their performance improved and assets grew,” says Micallef. “But, only half reported improvements in margins.”
In fact, one in three managers surveyed said margins declined and another 10% noted margins remained unchanged as costs increased. Meanwhile, 58% of managers in North America noted that costs have increased.
EY’s 2013 global hedge fund and investor survey compares opinions from 100 hedge fund managers who collectively manage nearly US$850 billion and 65 institutional investors with over US$190 billion allocated to hedge funds.