Hedge Fund Investors Rejecting Firms Over Transparency

May 28 2014 | 4:50pm ET

Investors and regulators have grown hoarse demanding increased transparency from alternative investment firms, and the industry has responded, to an extent. But the response from at least some firms hasn’t satisfied some potential clients—and it is costing them money, according to a new survey.

An astonishing 89% of investors polled by Intralinks and Opalesque have declined to put money with at least one hedge fund due to transparency concerns. For private-equity and real-estate funds, the number is 71%.

“There is a significant disconnect between the information investors want from their fund managers and what the managers are providing,” Intralinks alternative investments director Andre Boreas said. “Too much is never enough for the LPs, but GPs are rightly concerned about giving away the ‘secret sauce.’”

Investors—Intralinks and Opalesque polled more than 100 institutional investors, family offices and ultra high net worth individuals—do say that hedge funds and private equity firms are getting better on matters transparency. Two-thirds have noted improvements among hedge funds, and 45% amont p.e. managers. But 47% of hedge-fund investors say that managers still aren’t offering enough information, along with 52% of p.e. investors.

“The actual reporting hasn’t changed that much,” one family office chief investment officer said. “But if I ask for a particular piece of information, I usually get it. It does make me wonder if the same level of information is being afforded to all investors in a fund.”

Investors are also pushing for data with more frequency than in the past, when quarterly reporting was the norm. Now, a quarter of hedge fund investors are demanding reports on a daily or weekly basis, and half of p.e. investors insist on updates at least once a month. And simple performance figures don’t cut it anymore. Hedge-fund investors say that exposure and leverage information is almost as important; indeed, 96% of investors say it is either “very important” or “important.

“The old saying was that no one asks questions when you’re up 20%,” Intralinks alternative investments director Andre Boreas said. “That might very well be changing—and you can thank the financial crisis of 2007-2009, Bernie Madoff, Lehman and the challenges fund managers found themselves in during this time period.”


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