Union of long-only and hedge funds predicted
11 September 2012 Luxembourg
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More than two thirds of fund admin industry participants that were questioned in a Multifonds survey believed AIFMD will accelerate the convergence of long-only and hedge funds.
Although the directive’s implementation deadline of 22 July 2013 is looming, the research found that 20 percent of respondents felt they were behind schedule and would not be ready within the next 12 months.
The survey, which received more than 50 responses from senior participants across the global fund administration industry, also asked which elements of AIFMD will have the most significant impact on respondents. 57 percent see depositary liability as the most challenging element, followed by operational requirements and risk and liquidity management, both with 45 percent.
With funds having to conform to all the directive’s rules to market to European investors when AIFMD comes into effect, 63 percent agreed that AIFMD will make Europe a more attractive jurisdiction for alternative fund investors and 72 percent thought that non-EU managers would setup European operations to take advantage of AIFMD.
Aside from the impact of AIFMD, the survey highlights the other factors accelerating the convergence of mutual and hedge funds, a trend which over 86 percent of respondents believe is set to continue. The two other main factors driving the trend are institutional investors increasing allocations to hedge funds as well as retail investors increasingly looking for absolute returns.
Keith Hale, Multifonds’ executive vice president for client and business development, commented: “It is widely recognised that institutional investors, such as pension funds, are increasing their hedge fund allocations to diversify their asset class exposure, reduce the impact of market volatility and potentially boost returns.
"They expect higher risk management, transparency and liquidity resulting in alternative fund products that have more traditional, long-only fund characteristics. Similarly retail orientated absolute return funds, such as alternative UCITS, are driving traditional funds to incorporate hedge fund characteristics such as performance fees. These drivers aligned with the AFIMD will accelerate the convergence between long-only and hedge funds.
“This convergence poses both opportunities and challenges for the fund administrators. Those who can bring together the efficiencies of traditional fund processing with the complexities of alternative structures stand to gain market share, whereas those retaining a silo mentality and operating model, or those purely focussed on either traditional or alternatives, will be challenged in the medium term. As a result, the fund administration industry is already experiencing consolidation of long-only and hedge fund administrators, blurring the former distinction between the two types of service provider.”
Although the directive’s implementation deadline of 22 July 2013 is looming, the research found that 20 percent of respondents felt they were behind schedule and would not be ready within the next 12 months.
The survey, which received more than 50 responses from senior participants across the global fund administration industry, also asked which elements of AIFMD will have the most significant impact on respondents. 57 percent see depositary liability as the most challenging element, followed by operational requirements and risk and liquidity management, both with 45 percent.
With funds having to conform to all the directive’s rules to market to European investors when AIFMD comes into effect, 63 percent agreed that AIFMD will make Europe a more attractive jurisdiction for alternative fund investors and 72 percent thought that non-EU managers would setup European operations to take advantage of AIFMD.
Aside from the impact of AIFMD, the survey highlights the other factors accelerating the convergence of mutual and hedge funds, a trend which over 86 percent of respondents believe is set to continue. The two other main factors driving the trend are institutional investors increasing allocations to hedge funds as well as retail investors increasingly looking for absolute returns.
Keith Hale, Multifonds’ executive vice president for client and business development, commented: “It is widely recognised that institutional investors, such as pension funds, are increasing their hedge fund allocations to diversify their asset class exposure, reduce the impact of market volatility and potentially boost returns.
"They expect higher risk management, transparency and liquidity resulting in alternative fund products that have more traditional, long-only fund characteristics. Similarly retail orientated absolute return funds, such as alternative UCITS, are driving traditional funds to incorporate hedge fund characteristics such as performance fees. These drivers aligned with the AFIMD will accelerate the convergence between long-only and hedge funds.
“This convergence poses both opportunities and challenges for the fund administrators. Those who can bring together the efficiencies of traditional fund processing with the complexities of alternative structures stand to gain market share, whereas those retaining a silo mentality and operating model, or those purely focussed on either traditional or alternatives, will be challenged in the medium term. As a result, the fund administration industry is already experiencing consolidation of long-only and hedge fund administrators, blurring the former distinction between the two types of service provider.”
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