Hedge funds ‘have to try harder’ – FT.com

Not to brag, but I called this trend back in 2007/2008. HF trends were appearing more and more lackluster and investors were not going to be satisfied without greater transparency (and possibly liquidity).

Hedge funds ‘have to try harder’By Sophia GreneHedge funds are on their final warning with investors, according to research from SEI.

Although institutional investors have not yet wavered in their commitment to hedge funds, despite disappointing performance in recent years, they are now likely to be more demanding, both in terms of performance and of transparency. “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.”

Although many hedge funds failed to deliver positive returns during the financial crisis, investors were prepared to accept that they delivered better returns than traditional investments. ”But performance since then has been less than stellar,” said Mr Masterson. “Is that benefit of the doubt running out?”

The key to success in holding onto investors and gathering new assets is likely to be in communication and transparency, he added, with lack of portfolio transparency top of investors’ worry list. Nearly two-thirds of 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”.

There are a number of industry initiatives aimed at improving transparency – the Open Protocol Enabling Risk Aggregation, for example. Opera attempts to standardise risk reporting for hedge funds so investors in multiple hedge funds can see their total portfolio risk rather than having separate, difficult-to-compare risk reports.

“Communication, transparency and operational quality are really going to be prerequisites,” said Mr Masterson.

via Hedge funds ‘have to try harder’ – FT.com.

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