As the hedge fund industry changes so will the way managers structure, manage and market their products, said a report from KPMG International, Alternative Investment Management Association and Managed Funds Association.
With institutional investors having replaced high-net-worth individuals as their primary hedge fund client, the majority of managers surveyed believe pension funds, primarily corporate funds, will become their primary source of capital by 2020, said Robert Mirsky, global head of hedge funds at KPMG International.
To attract pension funds and other institutional investors, almost 70% of managers said they already offer or plan to offer custom investment solutions; more than two-thirds of respondents said they will offer specialized fee structures.
“Managers are looking at investors and becoming solution providers,” Mr. Mirsky said. “Significantly more managers are offering things like funds of one, segregated managed accounts and other customized product solutions, and (there’s been) an increase in the number of regulated products.”
In terms of geography, investor activity in emerging markets is increasing, Mr. Mirsky said.
Forty-four percent of managers with clients in Asia reported an increase in investor activity from that region; 41% of managers with clients in the Middle East and Africa reported an increase in those regions.
Managers are also interested in changing the regions where they invest. Of the 43% who expect to change their country mix, 21% intend to invest more into developed markets, 30% into emerging markets and 7% into frontier markets.
The survey also found 77% of managers view regulation as the biggest threat to the industry over the next five years. Compliance obligations resulted in higher operating costs in the past five years for 84% of managers surveyed. Seventy-five percent of respondents predict the number of hedge fund managers will decrease or remain the same in the next five years.