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Better hedge fund governance could attract more investors

Date: Tuesday, April 27, 2010
Author: Hedge Funds Review

Hedge fund managers believe better governance of the sector could boost investment more than increased regulation.

Better structuring, independent valuation, transparency and third-party control could result in increased allocations to hedge funds, according to a majority of managers responding to a survey by RBC Dexia Investor Services.

Only 30% of respondents said greater regulation would lead to increased allocations to the alternative sector. A further 18% thought regulation would draw assets away from the sector and 52% said it would have no impact.

Despite the results managers are turning to regulated domiciles in growing numbers. A massive 92% of managers with assets under management (AUM) of over $1 billion said regulatory influence was important in domicile selection, compared to 64% of managers of smaller funds.

Just under half of the respondents (49%) were planning to launch new onshore funds with around 40% planning to launch new funds in offshore centres.

More managers said greater governance would result in recruitment. Meeting this requirement would see 40% of managers hiring staff, while 35% said they would outsource governance activities. Smaller managers were more likely to look at third-party outsourcing in order to cut costs.

The drive to greater liquidity and flexibility was demonstrated by 60% of respondents saying they ran managed accounts. Almost half (47%) said liquidity was the main driver behind managed accounts.

A separate survey carried out by Advent Software found an increase in due diligence enquiries across the asset management industry. A significant majority (82%) of research directors in investment management companies reported an increase in due diligence enquiries from investors during the last year.

Almost half the respondents (48%) said exhaustive due diligence was the best way to improve investor confidence.

However, the increase in enquiries is causing companies problems. More than two-thirds (68%) of respondents said they were overloaded by the volume of information they dealt with and 86% said their companies needed multiple systems to acquire research to support investment decisions.

RBC Dexia surveyed 57 respondents worldwide. Half of the respondents represented single manager funds, 39% were funds of funds and 9% both. A significant 42% of respondents were handling assets under management worth $1 billion or greater. Respondents were global with 47% having their main location in Europe (40% continental Europe and 7% UK), 37% in North America, 14% in Asia-Pacific and 2% in the Middle East.

Advent surveyed 360 investment professionals worldwide for its survey.