Hedge Funds Growth 2020: The Changing Chemistry Between Hedge Funds and Investors Aranca Research, supported by FIS November 2016
Aranca Research, Supported by FIS Global Survey Hedge funds Americas High net worth investors Institutional investors Influencers Global Survey EMEA APAC 258 participants 2
Top Challenges Facing the Hedge Fund Industry 49% Growing AUM 49% Regulatory change 42% Fee pressure 31% Investment opportunities 31% Attracting new clients All respondents: What are the top three challenges faced by the hedge fund industry? 3
Key Findings Different hedge fund investors have strikingly different objectives. Fund managers planned range of products/strategies do not tally with investor interest. Investors perceive disruptive, innovative strategies to be enablers of growth. Regulation is hampering investment strategies. 4
Key Findings Demographic shifts will change the way hedge funds attract new business. Hedge funds must improve their technology to support growth and client relationships. Fee structures will impact fund profitability based on performance/asset growth. 5
Top Trends Driving the Hedge Fund Industry 80% Portfolio diversification 59% Return enhancement 54% Risk reduction 41% Niche specialism 30% Volatility dampening All respondents: Why have investors chosen to invest in a hedge fund? 6
Hedge funds provide an excellent investment opportunity. It provides us diversification while maximizing returns and minimizing risk. EVP, U.S.-based institutional investor 7
Funds Should be Flexible in Their Investment Styles If They are to Capture Client Capital Collectively, investors show a preference for the following strategies: Equity long/short (67%) Market neutral (40%) Event driven (38%) 8
Funds Should be Flexible in Their Investment Styles If They are to Capture Client Capital Hedge funds future plans are primarily: Separately managed accounts (31%) Equity long/short (27%) Commodity trading advisor/managed futures (24%) This suggests that many funds must be flexible in their investment styles if they are to capture client capital. 9
Changing Investor Expectations Optimize Investors are attracted to innovative investment strategies and the niche specialisms that will optimize their investment portfolios. Unify Investors and regulators expect a unified view of risk and transparency, timely reporting and robust operational processes. Strengthen Investors and regulators are driving hedge funds to strengthen their operations based on fee pressures and compliance pressures. 10
Changing Investor Expectations Optimize Create innovative investment strategies with global multi-asset class trading and portfolio management. Unify Achieve a unified view of risk across the front and middle office for improved risk management and investment decision making. Strengthen Combine infrastructure and resources onto a single platform for economies of scale and reduced costs. Leverage expertise with managed services. 11
Technology Capabilities Help Solve Challenges Trading and order management Investment risk management Portfolio management Market data and connectivity Investment Investment operations operations Regulatory reporting 12
Empower Growth by Leveraging Flexible Technology Start up and early stage hedge funds Mid-tier boutique hedge funds Larger institutional hedge funds 13
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Appendix: Respondents by Role 63% Investment professionals 33% 15% Operations professionals Risk professionals 10% Influencers professionals 25% Other 258 participants: 163 investment professionals, 84 operations professionals, 38 risk professionals, 26 influencers, 65 others Note: Overall respondent total and individual functional totals do not tally as respondents opted for multiple functional roles.. 15