Alternative Investment Management Association Representing the global hedge fund industry
The post-crisis influx of institutional money into hedge funds resulted in a marked increase in the global industry’s operational sophistication and transparency to investors, according to ‘The evolution of an industry’, a report released in 2012 by AIMA and KPMG.
The report was based on a survey of and in-depth interviews of 150 hedge fund management firms globally with more than $550 billion in combined assets under management. It found that hedge fund management firms increased their operational infrastructure in areas like investor transparency and regulatory compliance as allocations from institutional investors increased. Seventy-six per cent of respondents observed an increase in investment by pension funds after 2008, while institutional investors and funds of funds accounted for a clear majority (57%) of assets under management (a proportion that has since increased). The report found that the increase in institutional investment led to more thorough due diligence and greater demands by investors for transparency, with 90% of respondents reporting an increased demand for due diligence after 2008.
Eighty-four per cent of all respondents indicated they had increased transparency to investors, reflected by the fact that the majority of firms took on multiple members of staff to respond to these increased investor demands.
The report also found that hedge fund management firms had almost universally increased investment in regulatory compliance, with 98% of firms hiring additional staff in this area.
“Because institutional investors are extremely demanding in terms of due diligence, they require robust operational infrastructure in the managers they allocate to, so managers have responded by strengthening their own infrastructure. And because these institutional investors seek increased transparency, managers have increased their capacity to provide that too.”