Hedge Fund Trends: Constant Industry Growth, Concern Regarding Regulations

The hedge fund industry sees brighter horizon this 2015 and expects to surpass the $3.02 trillion figure set in 2014. According to Preqin, despite some issues that emerged after CalPERS’ exit and the poor industry performance last year, 63 per cent of surveyed fund managers still have a positive outlook on the remaining months of 2015. Aside from its continuous growth, other hedge fund trends to watch out for are the following:

Best and worst strategies. In a presentation provided by Glocap Search LLC, part of the market trends this year is the continued activity in long/short, pairs trading, event driven, and global macro. There will also be some pick-up in merger arbitrage, it adds.

Preqin’s study demonstrates that investors consider macro strategies (24 per cent), equity strategies (23 per cent), and event driven strategies (18 per cent) as the best practices to apply this 2015, while 30 per cent of the participants believe that financial institutions better veer away from credit strategies.

Industry regulations. Provisions and guidelines set by regulatory bodies, such as the SEC, may have helped increase opportunities for hedge fund managers in regions where investments were once constrained. However, they also bring a number of regulatory burdens and compliance measures that greatly challenge fund managers.

Higher than last year’s 50 per cent, Preqin said that 58 per cent of managers now believe that regulations could bring negative consequences. 57 per cent specifically cited AIFMD as the most challenging regulation.

In the Alternative Investment Management Association’s industry survey conducted in 2013, results suggest that the hedge fund sector has already invested heavily in compliance efforts to meet regulatory policies, allocating more than $3 billion dollars on compliance costs. Additional data also demonstrate that nine out of ten managers expect their budget for regulatory compliance to double over the next five years.

Investor demands and concerns. This year, investors have been strengthening dialogues with managers over hedge fund terms and conditions. 68 per cent of them, according to Preqin, want to see improvements in management fees, followed by performance fees at 38 per cent.

Capital Management Services Group explained that fund managers normally demand management fees of 1 to 2 per cent of assets under management (AUM), while performance fees range from 20 per cent to 50 per cent of net trading gains.

Meanwhile, other key issues raised by investors include increased transparency at 29 per cent, hurdle rate at 24 per cent and manager commitment to fund at 18 per cent.

To respond to the influx of challenges for this year, investors are advised to seek help from trusted asset management firms that are not just fully aware of the up and coming hedge fund trends, but can also provide proprietary solutions to reach financial goals and make the most out of today’s market opportunities.