Investors to Hedge Funds, We Need To Talk…
by Staff Writer on February 22, 2012
I think we need to talk about our relationship.
A study conducted by two well-regarded management consulting and operational outsourced services firms, SEI and Greenwich Associates, revealed the following:
“Institutional investors continue to deepen their commitment to hedge funds, but expect much more from managers in terms of articulating their value proposition, risk mitigation methodology, and performance expectations…”
Accredited wealthy and institutional investors remain committed to hedge funds even in the face of lackluster and sometimes pretty lousy results in 2011 (please refer to HedgeFundsX for our coverage of 2011 year end hedge fund performances).
Due in part to disappointing returns investors are now demanding more discussions, transparency and openness from the hedge funds.
“Investors remain committed but there’s a caveat,” said Phil Masterson, who is in charge of investment manager services at SEI. “The performance expectation is the most significant challenge managers’ face.”
Masterson highlighted investor concerns”… performance … has been less than stellar.” He wondered how long the trust will remain. “Is that benefit of the doubt running out?” Masterson asked.
As in a relationship, communication and transparency is vital. For investors that are deeply committed into a relationship in which they generally pay fees of 2% of assets under management and 20% in fees on profits, having an open and frank conversation regarding their relationship seems paramount.
Nearly 70% of the investors surveyed said they wanted hedge fund managers to communicate with them monthly.
“It’s absolutely critical for managers to differentiate themselves by articulating their investment strategies,” said Mr. Masterson, adding that hedge fund managers could also improve their position by ensuring they understood what investors really wanted, “what are their investment objectives, what is their risk profile”.
“Communication, transparency and operational quality are really going to be prerequisites,” said Mr. Masterson.
The study did not address if investors were upset that hedge funds didn’t compliment their new cute outfits purchased just for their meetings or the fact that hedge funds didn’t notice all the weight they lost. It’s not known if after reading the results and having the talk; hedge funds bought the investors jewelry or took them to a nice dinner and vacation to strengthen the relationship.
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