The hedge fund industry is here to stay. Yet, the industry’s value proposition is being seriously questioned, and institutions continue to escalate their demands for transparency and intensify their due-diligence processes. Some see the institutionalization of hedge funds as a double-edged trend that may hinder performance even as it brings more discipline and accountability to the industry. No longer can managers simply “show and tell.” Now investors want proof and need to judge for themselves. To explore what directions the industry is taking now, and how hedge fund firms can better equip themselves to succeed, SEI & Minard Capital complemented a survey of institutional investors with wide-ranging roundtable discussions. The resulting study identifies several key challenges hedge fund firms must meet if they hope to succeed in the long term:
- Sustainable edge. Institutional investors are raising the bar for manager selection as “there are too many look-alike strategies in the industry,”
- Adaptability. Hedge fund managers need to rethink their business models and develop multi-faceted solutions that package their capabilities most effectively.
- Clear value added. Investors are increasingly concerned with how much “true alpha” they are getting for the hedge fund fees they pay.
- The right fit. Today’s investors have complex needs and want hedge funds to serve multiple objectives within an overall portfolio mix.
- Scale or sizzle. While large funds still attract the majority of institutional assets, small funds may be better equipped to offer competitive returns.
- Business and marketing acumen. Asset growth often depends more on effective marketing and sound business management than investment performance.
For further details on these challenges, visit SEI’s website to receive your copy of the white paper, “6 Ways Hedge Funds Need to Adapt Now.”
- SEI Knowledge Partnership
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