Growth is the top strategic priority for most hedge funds next year, according to a global survey by EY.
But maintaining or improving margins is a battle as costs outpace revenues for one out of three managers.
As the hedge fund industry matures, managers who survived the financial crisis are beginning to focus on growing beyond their original business models, according to EY’s seventh annual survey of the global hedge fund market.
Jon Pye, EY’s Oceania Hedge Fund leader, says Australian managers are generally not seeing the same growth locally and conditions remain tough.
“While institutional investors are a growing source of direct funds for many global managers, local institutional investors, in the form of larger superannuation funds, are highly fee sensitive,” Pye says.
“With the introduction of My Super, many would not even consider investment into a hedge fund.
“This approach may be short sighted though, as many of the best hedge fund managers outperform traditional managers on a net basis.”
Globally, as investor and regulatory demands grow, managers are focusing relentlessly on operational efficiency and costs in the battle to maintain margins.
According to the survey, two in three managers reported an increase in revenues over the past year as performance improved and assets grew.
However, just half of managers reported improvements in margins. One in three managers said margins declined and another 10 per cent noted margins remained unchanged as costs increased.
Although three in four fund managers in Asia said that costs had increased, they have also been the most successful in raising capital and thereby growing revenue, and their margins have improved as a result.
The EY survey interviewed 100 hedge funds representing nearly US$850 billion in assets under management.
This chart shows the strategic priorities of hedge funds: