Hedge funds’ shrinking returns and escalating investor demands. Downward pressure on fees and unrelenting requirements to have robust operating models. This year, competing forces came together to culminate in the perfect storm. In a year marked by lackluster performance and rising investor expectations, one inevitably asks: Will the challenges of today pave the way to a more successful tomorrow? That all depends on how you respond. As we look back on the year that has passed and look ahead to 2017, a few points come into sharp focus.
Pressures on Hedge Funds
The hedge fund industry continues to be under pressure from several compounding forces. Performance has been pedestrian, with absolute returns challenged by external factors such as unprecedented central bank involvement and relative returns paling in comparison to the historic ongoing equity bull market. Disappointing returns have amplified the discussion among managers and investors as to whether the fees charged are appropriate relative to returns generated. Additionally, investors have become more sophisticated and strategic in developing their portfolios. They have more options than ever within the alternatives universe and are allocating funds to those managers that have a unique offering that is satisfying a specific need of the investor’s strategy. Oftentimes, this results in a shifting of assets from those managers who have been slow to react to managers who have been at the forefront of listening to their investors and creating strategic solutions to keep pace with investors’ needs.
Competition for capital is turning fundraising to a zero sum game