Hedge funds will need to bow to the demands of their asset owners, according a survey of hedge fund risk managers by Algorithmics, a provider of enterprise risk solutions. Asked to name the key market challenges currently facing hedge funds, survey respondents listed regulation and the pressure from investors for greater transparency as their biggest challenges.
When asked about their investors’ concerns the same picture emerged: respondents considered these to be transparency of fund operations, assessment of risk systems as part of the due diligence process and costs of fund management. Liquidity, ideally daily, was also considered a high priority for investors. These findings were confirmed by another poll conducted by Algorithmics in a recent webinar, where 84% agreed that asset owners would place increasing pressure on external asset managers for greater risk transparency.
Martin Botha, director, buy side solutions, Algorithmics, said: “These findings are supported by the fact that we are seeing enquiries from hedge funds for the institutional-strength risk systems they need to meet their asset owners’ due diligence requirements as part of their manager selection. Hedge funds are beginning to recognise the importance of best practice risk management in attracting funds from investors.”
Dr Andrew Aziz, executive vice president of risk solutions at Algorithmics, added: “Growing regulatory demands – including Undertakings for Collective Investment in Transferable Securities [UCITS] IV, the EU Directive on Alternative
Investment Fund Managers [AIFMFD] and Dodd Frank – are driving the need for more frequent and higher quality risk reporting. At the same time, post Madoff, investors have no tolerance for weak operational risk management or weak governance at the funds managing their assets. These factors are driving investors’ demand for more transparency, solid operational infrastructure and reliable risk data from their hedge fund managers.”
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