Hedge funds turn insto

Date: Friday, July 25, 2008
Author: Ruth Liew, Financial Standard

The global hedge fund space is undergoing a period of radical change as large hedge funds become institutionalised, new research shows.

According to international strategy consultancy Celent, large hedge funds are undergoing institutionalisation as US pension plans and endowment funds demand players display vigorous operation capabilities to satisfy demanding due diligence requirements.

“Many hedge funds have grown to a size and scope that require managers to run their business more formally. As a result, a redesigned hedge fund organisation has emerged," said Celent.

“With substantial operation infrastructure capabilities and sound internal control and risk management practices in place, many large funds now have much in common with their asset management counterparts."

According to the research house, US endowment funds and foundations currently account for 40 per cent of insto hedge fund capital while pension plans, which control significantly more in assets account for 50 per cent.

The growing inflow of institutional money has seen pension and endowment funds demand robust operational capabilities from hedge funds.

Top of the list is institution-quality infrastructure, followed by a call for more transparency, according to an SEI white paper titled “Five Critical Challenges for Hedge Funds Taking Aim at the Institutional Market."

Finally, personnel or employees of the firm were ranked the third most important factor in hedge fund selection.

“This is with regard to those making investment decisions as well as operations personnel," noted the report.