Demand for transparency increases
07 October 2010 Jersey City
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Pershing LLC, announced today the availability of a new report, Transparency and Liquidity: The Growth of Separately Managed Accounts in the Hedge Fund Industry. This independent study examines the emergence of separately managed accounts (SMAs) as increasingly popular hedge fund structures and the growth opportunities this trend presents to managers.
The study, developed with Greenwich Associates, a research-based strategy management financial services firm, details growing investor demand toward SMAs and provides guidance on how hedge fund managers can more effectively incorporate SMAs into their investment solutions and attract additional assets. The study, conducted by Greenwich Associates, is based on detailed interviews with 41 hedge fund and investment managers and 27 leading institutional investors.
Highlights of the study include the following:
Input on Investment Decisions Drives Investors to SMAs - Nearly 63% of the investors who participated in the survey cited the opportunity to have greater influence on SMA strategy and input in the area of risk management as one of its primary benefits. This is a result of many investors having experienced significant losses in the past few years.
Demand for Transparency Increasing - Approximately 45% of hedge fund managers reported that investors in pooled funds are pushing for higher levels of transparency. More than 50% of the investors pointed to daily transparency as a central reason for using SMAs, a benefit that many investors associate with better protection against fraud risk.
Access to Liquidity Needed - 33% of the surveyed investors cited access to liquidity as an important benefit of SMAs. Almost 50% of hedge fund managers said they are experiencing pressure from their investors to eliminate lockup periods and redemption notice requirements while fewer managers report pressure from investors to reduce fees. Investors are reassessing the role of illiquid assets within their portfolios and seeking greater liquidity across all investments.
Opportunity for Hedge Funds To Attract Additional Assets - Nearly 80% of the hedge fund managers interviewed currently offer SMAs as part of their investment solution and most confirm that SMAs are instrumental in attracting investor assets because they address investors' greatest concerns: transparency, liquidity, customized investments, and the ability to negotiate fees. However, despite having the necessary infrastructure, the study also reveals most managers are not actively promoting SMAs. More than 60% of the hedge fund managers cited administrative requirements and resource demands as serious disadvantages associated with SMAs, while 33% cited additional costs as a significant challenge.
"The increasing demand among investors for SMAs demonstrates the growth opportunity for hedge fund managers who incorporate SMAs into their investment strategy," said Craig Messinger, managing director at Pershing Prime Services. "Hedge fund managers should consider strengthening business operations internally and leveraging the full capabilities of their prime brokers to meet the growing investor demand for greater transparency, liquidity and flexibility," added Messinger.
John Colon, managing director at Greenwich Associates, said, "Prime brokers can help hedge fund managers develop efficient offerings that reduce administrative burdens while meeting investors' current needs. As investors gravitate to the SMA structure, growth-minded hedge funds managers seeking new assets and longer-lasting relationships with their clients will look to abandon older 'black box' models in favor of more tailored offerings."
The study, developed with Greenwich Associates, a research-based strategy management financial services firm, details growing investor demand toward SMAs and provides guidance on how hedge fund managers can more effectively incorporate SMAs into their investment solutions and attract additional assets. The study, conducted by Greenwich Associates, is based on detailed interviews with 41 hedge fund and investment managers and 27 leading institutional investors.
Highlights of the study include the following:
Input on Investment Decisions Drives Investors to SMAs - Nearly 63% of the investors who participated in the survey cited the opportunity to have greater influence on SMA strategy and input in the area of risk management as one of its primary benefits. This is a result of many investors having experienced significant losses in the past few years.
Demand for Transparency Increasing - Approximately 45% of hedge fund managers reported that investors in pooled funds are pushing for higher levels of transparency. More than 50% of the investors pointed to daily transparency as a central reason for using SMAs, a benefit that many investors associate with better protection against fraud risk.
Access to Liquidity Needed - 33% of the surveyed investors cited access to liquidity as an important benefit of SMAs. Almost 50% of hedge fund managers said they are experiencing pressure from their investors to eliminate lockup periods and redemption notice requirements while fewer managers report pressure from investors to reduce fees. Investors are reassessing the role of illiquid assets within their portfolios and seeking greater liquidity across all investments.
Opportunity for Hedge Funds To Attract Additional Assets - Nearly 80% of the hedge fund managers interviewed currently offer SMAs as part of their investment solution and most confirm that SMAs are instrumental in attracting investor assets because they address investors' greatest concerns: transparency, liquidity, customized investments, and the ability to negotiate fees. However, despite having the necessary infrastructure, the study also reveals most managers are not actively promoting SMAs. More than 60% of the hedge fund managers cited administrative requirements and resource demands as serious disadvantages associated with SMAs, while 33% cited additional costs as a significant challenge.
"The increasing demand among investors for SMAs demonstrates the growth opportunity for hedge fund managers who incorporate SMAs into their investment strategy," said Craig Messinger, managing director at Pershing Prime Services. "Hedge fund managers should consider strengthening business operations internally and leveraging the full capabilities of their prime brokers to meet the growing investor demand for greater transparency, liquidity and flexibility," added Messinger.
John Colon, managing director at Greenwich Associates, said, "Prime brokers can help hedge fund managers develop efficient offerings that reduce administrative burdens while meeting investors' current needs. As investors gravitate to the SMA structure, growth-minded hedge funds managers seeking new assets and longer-lasting relationships with their clients will look to abandon older 'black box' models in favor of more tailored offerings."
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