Survey: Top Hedge Funds Fret Over Retention, Growth

Oct 17 2007 | 2:07pm ET

The world's leading hedge funds managers are apparently more concerned about attracting and retaining talent and managing their assets than anything else, according to new survey published today by Ernst & Young. 

According to the “Navigating New Complexities” survey, 81% of the top 100 global hedge funds and funds of funds regard retention and growth as their most important priorities compared to 9% who anticipate investing or developing new products as top priorities.

Art Tully, co-leader of the global hedge funds practice at Ernst & Young, said: "The real concerns for managers, across most of the regions interviewed, were with regards to retaining key personnel, such as portfolio managers, senior researchers and senior operations staff, including compliance and operational risk functions. Managers believe that compensation packages are clearly the most important means of winning the war for talent."

Only 13% of managers expect to raise permanent capital in the next two years via a partial sale of their firms; and those who have the greatest interest in raising permanent capital comes from the Far East hedge fund market. David Sung of Ernst & Young's Hong Kong office said: "Given that the managers in the Far East have yet to experience the maturity of businesses in the US and Europe, the idea of having more permanent capital could be appealing as a faster means of stabilizing their asset base."
Also, the good news for investors (if it comes to fruition) is that that the majority of funds expect incentive fees and management fees to decrease in the next two years, and two-thirds of respondents expect their investor lock-in period to decrease in the near future; just a fifth anticipate an increase.

But don’t hold onto your wallets too tightly, says Julian Young of Ernst & Young's UK hedge funds practice. "Although pressures on fees may be downward, managers that consistently perform well—both on an absolute and relative basis—will also be able to continue to charge the fee structure they want. The poorer performers will be affected the most."

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