Deloitte: Hedge Funds Meet to Assess New Pressures in the Year Ahead —CFO Journal

Stakeholders Discuss Greater Institutional Investor Makeup, Governance Structures, Greater Regulatory Scrutiny

Deloitte Insights contributes a piece to the CFO Journal on the Wall Street Journal site, part of a series designed to provide financial executives a customized resource to help them address the strategic, operational and regulatory issues they face in managing their finance organizations and careers, with top-line digests, research, perspectives and technical analyses.

This Deloitte Insight reports on the Third Annual Hedge Fund Symposium Series held in New York recently.  There, Joseph Fisher, who leads the Hedge Fund Audit practice for Deloitte & Touche LLP in New York, commented on how the hedge fund industry continues to grow despite being constrained more than ever by new regulatory and other changes that add new stresses for hedge funds.  More:

Institutional Investor Assets Continue to Rise

One panel discussion focused on the rise of institutional investors in hedge funds and what impact they have made. Institutional investors’ hedge fund allocations have increased five-fold since 2003, and today, while the average institutional allocation in hedge funds is about 10%, it is expected to double by 2016, according to estimates by Citi Prime Finance.* “The impact on the growth in institutional investors has put pressure on hedge fund fees, including the ability to negotiate on price,” said Michael Chung, a director in the Asset Management Services practice at Deloitte & Touche LLP.

Mr. Chung asked the panel a series of questions on the impact the growth in the institutional investor client base was having on the hedge fund industry and what value propositions hedge funds are offering institutional investors. In response, the panel mentioned hedge funds’ breadth of offerings for alternative risk adjusted returns and a variety of assets and financial instruments. The fact that hedge funds are one of the few flexible investing pools available to institutional investors was another feature the panel cited. Another benefit mentioned was the high degree of customization hedge funds can offer clients, such as separately managed accounts and a high degree of transparency when needed, in the form of information on how investments are being made.

One head investor at a large public fund said that he examines hedge funds for “economic alignment” of interests, in the form of whether the hedge fund’s own money is invested alongside that of their investors, as well as how much. Another issue is the size and structure of the management fees.

Read the whole piece here for more on fraud risk, regulations and enforcement actions, and more.  [Wall Street Journal, Tiered Subscription Model]

It’s Tough to Manage it All When the Stakes are High 

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