The worldwide hedge fund industry is responding willingly to requests of investors for more transparency, according to a new report from Ernst & Young.
Investors said they receive absolute performance data from 95 percent of hedge funds, while another 74 percent of funds present data showing performance attrition. Majority of hedge funds are also providing risk information.
Meanwhile, about 75 percent of polled hedge funds said their investors get all the information they would like from them.
The annual study surveyed 104 hedge fund managers who manage about US$585 billion in assets, and 53 institutional investors representing US$260 billion in assets, of which over one-quarter are invested in hedge funds.
The study also shows that most investors are pressing hedge funds to offer more favourable liquidity terms and lower fees.
More than 50 percent said they now have more negotiating power, while over 40 percent said they have put pressure on their hedge fund managers to lower incentive and management fees.
In response to investor demands, about 45 percent of hedge funds have made changes to their liquidity, fee or structure to draw new capital. Nearly 51 percent of US hedge funds, 43 percent of European funds and 24 percent of Asian funds have made such changes.
Nearly one-third of the hedge funds have lowered management fees, 27 percent cut minimum lock-up and 36 percent allowed liquidity more frequently. About 16 percent said they have cut incentive fees.
Hedge fund managers predict increased costs of regulatory compliance and investments in technology and infrastructure as inevitable, said Brian Thung, partner for financial services at Ernst & Young.
“These concerns stand in stark contrast to the issues hedge fund managers foresaw in 2007, when attracting and retaining talent and managing the growth in the business topped the list,” he said.