Hedge Fund Intelligence New standards in Investor Transparency | Page 8

NEW STANDARDS IN INVESTOR TRANSPARENCY

INVESTORS ARE THE KEY DRIVERS
Clearly, then, it is institutions rather than high-net-worth individuals or family offices that will be the driving force of the industry’s continued growth,
with Deutsche reckoning that total assets under management will reach a
record $3 trillion by the end of 2014, compared with $2.6 trillion at year-end
2013. “Institutional investors now account for two thirds of industry assets,
compared to approximately one third pre-crisis.”
Peter Sanchez, chief executive officer at Northern Trust Hedge Fund Services
in Chicago, puts the institutionalisation of the market above regulatory pressure as the main catalyst
of change within the industry.
“Institutional investors demand a high level of
transparency in terms of exposure, performance
and compliance, and they want these commitments
in the offering memoranda,” he says. “All the pressure for transparency that they brought to the traditional world, they have also brought to the hedge
fund world.”
Permal’s Fawcett puts this evolution into its historical context. “Until 2008, the balance of power
lay very clearly with the hedge fund managers,” he
Peter Sanchez, CEO at
says. “There was more demand than supply, a lot of
Northern Trust Hedge
funds were closed to new investors and managers
Fund Services
could more or less dictate their own terms.”
“2008 changed that dynamic in several ways,” says
>> Institutional investors
Fawcett. “Although hedge funds performed better
demand a high level of
than long-only managers, as a group they still suftransparency in terms of
fered losses. At the same time, investors discovered
exposure, performance and that a lot of the funds had considerably more expocompliance, and they want sure to illiquid investments than they thought.”
In some of the most extreme cases, exposure to
these commitments in the
illiquid positions meant that portfolios were radioffering memoranda >>
cally different from what investors had been led to
8 Special Report June 2014

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