Fund Of Funds Increase Transparency, Consider Changing Service Providers To Shore Up Confidence

Jun 1 2010 | 9:35am ET

The fund of hedge funds industry expects intense competition for investment capital as firms work to enhance transparency, according to a new survey conducted by accounting form Rothstein Kass. Nearly half of survey respondents indicated that they anticipate increased competition from single-manager vehicles, and over 45% expect greater competition from institutional investors replicating fund of funds. To confront this trend, 60% of fund of funds surveyed said that they are providing greater transparency to investors in response to market conditions.

“The growth of the fund of funds sector was propelled by its ability to offer portfolio diversification, superior results consistent with specific risk profiles and to some extent, peace of mind. Though investor resolve was shaken by market events and high-profile incidents of malfeasance, the fund of funds industry was sustained by an institutional investment community that recognized that the fundamental benefits were unchanged by short-term market volatility,” said Howard Altman, co-chief executive officer and co-managing principal of Rothstein Kass. “As they seek to raise new capital, however, fund of funds managers are finding that institutional investors are placing a greater emphasis on due diligence processes."

Increasing transparency isn't the only way fund of funds are upping their game. According to the survey, funds of funds will be shopping around for some new service providers this year, particularly in the areas of administrators, custodians, auditors and lawyers.

The survey found that 47% of respondents suggested that of existing service providers, they would be most likely to review or change their fund administrator relationship this year; 25% of participants indicated that they would be most likely to review or change their custodian; And 28% are most likely to review or change their auditor or legal counsel.

“Fund of fund managers also understand that they will be judged, to a greater extent, on the quality of professional relationships. As a result alignment with reputable third-parties has become a key differentiator in the marketing of these investment vehicles,”  said Jeff Kollin, a director in the financial services practice of the Rothstein Kass business advisory services group.

Other survey results found that 58% of survey participants would consider lowering fees in exchange for longer investment lock-up periods; And 34% of fund of funds are providing increased liquidity in response to market conditions.

Rothstein Kass commissioned market research firm Infosurv to conduct research for the survey, “A Call to Action,” which aims to gain insight into the trends shaping the fund of funds space and the outlook for the future. Results were based on online and/or telephone interviews with 103 fund of fund managers and executives representing a total of 93 companies and 294 funds.


In Depth

Exotic Assets: Investing In Rare Violins

Jan 17 2017 | 4:43pm ET

By definition, alternative investments include exotic assets far beyond your typical...

Lifestyle

'Tis the Season: Wall Street Holiday Parties Back In Fashion

Dec 22 2016 | 9:23pm ET

Spending on Wall Street holiday parties has largely returned to pre-2008 levels...

Guest Contributor

The Trump Administration: What It Could Mean for Carried Interest

Jan 19 2017 | 5:25pm ET

The arrival of the Trump administration brings the potential for a repeal of the...

 

From the current issue of

As initial anxiety over Donald Trump’s victory gave way to market euphoria in the days following the election, there was a casualty. Gold prices.