industry news | pwc survey indicates hedge funds have easily overtaken other alternative asset classes
More than 80% of the world"s investment managers will provide hedge funds among their products in the next three years, according to PricewaterhouseCoopers" (PwC) Global Investment Management Survey.
Respondents" eagerness to launch hedge funds makes these products easily the most important alternative vehicle to add in managers" eyes in the future, eclipsing private equity, property and guaranteed funds, and index-based products.
But the greater number of funds by late 2006 is expected to come from fewer providers, with half the respondents expecting 10% to 30% consolidation among investment managers over the same period
About 54% of respondents who currently provide hedge funds will be complemented by a further 29% in both Asia and Europe, and globally.
Louise Spencer, partner in PwC"s investment management division, said asset managers" growing focus on higher margin products and higher quality revenue was one driver behind hedge funds" attractiveness to respondents. The survey covered 71 investment management groups with more than $6.6 trillion covering both traditional and hedge managers, and fairly evenly split between those managing less than $10bn, between $10bn and $50bn and over $50bn.
Importance of having products able to withstand bear markets was enforced by the 49% of respondents with guaranteed funds, expected to rise to 66% of respondents within three years.
Spencer said she was surprised so many houses saw hedge funds as one way forward, given some concern about hedge funds" appropriateness for retail investors, and issues of running long/short money alongside long-only.
Half the respondents also expected extensive and quite rapid consolidation, rationalising down to between 10% and 30% of present number of products and managers within three years.
The study also found managers were increasingly selective in entering new markets, many preferring to be "cross-border" than "global" and looking favourably on joint ventures with local players.
Many non-UK respondents also interestingly preferred to extend to the US or within mainland Europe than tackle a UK market Spencer said many saw as saturated and, on the retail side, expensive to pierce.
"Consolidation would definitely happen if regulations allowed it more easily, but for managers to consolidate down 30% in three years means most of them must already have a deal on their books," Spencer said.
She added acquisitions could prove a "big distraction" for top managers, who may have been fund managers not experienced in business take-overs.
Spencer said another key challenge managers mentioned was rebuilding investor trust, whether after scandals in hedge funds, or performance of long-only vehicles.
However, investment managers considering entering the hedge fund market should be aware UK tax authorities are casting their eyes to tax issues around hedge funds and their managers, and potentially seeking a test case among UK hedge funds to take to court.
Robert Mellor a director at PwC, said what began as an Inland Revenue fact-finding exercise has "escalated over the past year" with at least three Special Compliance Officers now involved in reviewing the industry.
Mellor said as well as the areas IR traditionally scrutinises, it is also reviewing fee structures where a manager"s own money is being managed.
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Speaking at PA360 North
Speaking at PA360 North
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