markets and strategies
The future of the fund of hedge funds industry is being shaped by the entrance of institutions into the market, according to Jeff Landle, chief investment officer at HBV Alternative Advisors.
They are demanding a different style of management with greater transparency and less risk and hedge fund managers must evolve to survive, he told an audience at the Alternative Investment Summit in London last month.
The fund of funds industry has seen huge growth in recent years and is no longer a cottage industry. The increasing entrance of institutions with large sums to invest in the business will effect the way hedge fund managers act, said Landle, leading to greater consideration of investor needs.
Transparency is at the top of the list, according to Landle. 'Institutions are not happy if they do not know what is going on,' he said.
Part of this is a desire for regular information on performance and positions and part is a demand for clear processes, which investors can understand. The occasional notification of good performance with managers free to do as they please could be in its last days.
Because of the greater desire for transparency prime brokers will occupy an increasingly important position in the hedge fund market, he added.
Many new products will be geared towards a longer-term more protective stance to suit institutions, and this will lead to a rise in the number of structured hedge fund products, according to Landle.
Institutions will also demand a growth in solutions customised to individual investors, he added.
He also predicted the increasing use of sophisticated tools to aid investment, including pseudo exchanges.
Markets will become more efficient, decreasing the possibility of an information edge for managers to exploit, he said. What managers are able to do with the information they receive will gain added importance because of this.
New models will be needed to maintain an edge, he said, and managers who cannot evolve are destined to fail.
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