NYHFR: Alternative Investment Industry Weighs in on SWFs, Heightened Regulatory Environment

Jan 10 2017 | 12:54am ET

The amount of assets under management by sovereign wealth funds will continue to rise, according to a recent survey of New York Hedge Fund Roundtable members, while the majority of members are more afraid of cyber security hacks than the possibility of being audited despite increased regulatory oversight.

The two topics – the impact of sovereign wealth funds on markets around the world and regulators’ enhanced scrutiny of the alternative investment industry – were among the topics recently asked of New York Hedge Fund Roundtable members, according to a statement by the organization.

Key findings of the two surveys:

  • Asked whether they believe Donald Trump’s promises of protectionism will impact the flow of assets into sovereign funds, 81% of respondents said no, while only 19% believe it will.
  • When asked to indicate their outlook for assets controlled by export based sovereign wealth funds such as China and Singapore, 59% of respondents said they believe that assets in these countries will continue to rise; while 41% of respondents believe that declining commodity prices and trade wars will spur countries whose economies are heavily reliant on exports to either halt inflows into their sovereign wealth funds or to decrease the assets within them.
  • While more than 27% of sovereign wealth funds have significant exposure to alternative investments, they tend to favor real assets such as real estate and infrastructure. Given this reality, Roundtable members were asked how they expect sovereign wealth funds will change their exposure to hedge funds in the near future. 36% of respondents don’t expect any change; 33% think they will increase their hedge fund exposure; and 31% think they will decrease their hedge fund exposure.
  • Asked how they expect sovereign wealth funds to change their exposure to real assets in the near future, 46% of respondents think they will increase their real assets; 28% think they will decrease their real assets; and 26% don’t foresee any change.
  • When asked where they believe the price of a barrel of crude oil will end the first quarter of 2017, 41% of respondents said they think it will be in the $50 to $60 range; 32% think it will be in the $40 to $50 range; 14% think it will be between $60 and $70; 8% think it will be above $70 and 5% think it will fall below $35 per barrel. Comparatively, when Roundtable members were asked this same question back in April 2016, 66% of respondents predicted that oil would end 2016 in the $40 to $50 range; 28% predicted the $50 to $60 range; and 6% thought it would fall below $30 per barrel.
  • When asked if their firms have been the subject of a recent audit, 34% of respondents said they have; while 66% said they haven’t. Of those who have been audited, 31% have been audited in the past year; 19% within the past three years; and 50% within the past five years.
  • Asked what worries them most, 53% of respondents said it is a cyber security hack; 40% said it is increased regulations; and 7% said it is an audit.
  • 53% of respondents believe that the change in administration won’t impact the frequency of exams and audits, while 47% believe it will.
  • When asked how their firm would prepare for an audit, 40% of respondents said they would bring in external resources to help them prepare; 33% said they would prepare internally; and 27% said they would do a mock audit.
  • Asked which technologies their firms already rely on, or plan to begin using, to collect and maintain information that might be needed if they were audited, 34% of respondents said they use software that tracks and records all emails; 8% use compliance software that tracks and records all trades; and 58% of respondents said they use both types.
  • When asked who would lead things if their firm were subjected to an audit, 53% of respondents said it would be their chief compliance officer; 23% said it would be their chief executive officer; 12% said it would be their chief operating officer; and another 12% said they have no idea.

The New York Hedge Fund Roundtable is a non-profit organization focused on promoting ethics and best practices within the alternative investment industry. The membership consists of investors, fund managers and other industry professionals who regularly meet to discuss current issues within the industry and connect with peers.


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