Goodbye, hedge funds: Big-name investors ditch hedge funds for riskier assets

But margins might be adversely impacted.

As asset growth in traditional hedge funds from institutional investors continues to slow, hedge fund managers are pinning their hopes on the power of new products to attract investor assets and drive growth.

However, many are underestimating the costs involved and the effect on margins, according to EY’s 2014 global hedge fund and investor survey.

The trend of a gradual slowing of allocations to traditional hedge funds continues. In 2012, 20% of institutional investors that were surveyed expected an increase in their allocation while in 2013 that percent declined to 17%.

In the 2014 survey, 13% responded that they plan to increase their allocation to traditional hedge funds in the next three years, while 13% expect to decrease their allocation and 74% expect it to remain the same.

“The impact on margins for these new products is logical. Separately managed accounts often come with fee concessions that impact margins and add complexity to reporting; sub-advisory relationships can carry unique reporting requirements and service provider demands; and registered liquid alternatives are lower fee products that require significant investment to set up. In fact, the negative impact on margins is most acute in Europe and among larger managers. Having said that, our survey shows only 11% of Asia-Pacific managers have indicated this negatively affected their margin,” said Brian Thung, Wealth and Asset Management (WAM) Asean Leader at EY.

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