SEI Study: Hedge Fund Managers Must Focus on Risk Management to Capitalize on Renewed Investor CommitmentBy Sei, PRNE
Monday, January 17, 2011
Risk Management Infrastructure and Risk Reporting Take on New Prominence for Institutional Investors
DUBAI, United Arab Emirates, January 18, 2011 - Institutional investors are bolstering their commitment to hedge funds,
but expect greater transparency and solid risk management infrastructures
from managers, according to an annual global study released today by SEI
(Nasdaq: SEIC) in collaboration with Greenwich Associates. The report,
entitled "Institutional Hedge Fund Investing Comes of Age: A New Perspective
on the Road Ahead" and available at www.seic.com/2011HedgeResearch,
indicates a need for hedge fund managers to enhance their risk management
infrastructure and risk reporting, and institutionalize transparency policies
to attract new capital, satisfy anxious investors, and protect their
reputations. The study also revealed the importance of fund managers clearly
articulating how their investment strategies add value to investors'
portfolios, which presents an opportunity for managers to differentiate
themselves through market-leading client service, reporting, and education.
The study results found that institutional investors' confidence in hedge
funds is growing, as more than half (54 percent) of all survey respondents
said they plan to increase target allocations over the next 12 months. That
confidence is conditional, however, as the demand for increased transparency
and risk management were recurring themes throughout this year's study. In
fact, the focus on risk management infrastructure emerged as the second most
important hedge fund selection criteria this year, with 75 percent of
respondents deeming it "very important." Notably, it was not among the top
ten selection factors in SEI's report last year. Only clarity of investment
philosophy ranked higher than risk management, with 79 percent deeming it
"very important" — emphasizing the growing demand among investors for
transparency and understandable investment strategies.
"The study confirms what we have been seeing and hearing from our clients
– that investors are committed to hedge funds, but managers must get and
keep investors comfortable with their investment decision," said Phil
Masterson, Managing Director for SEI's Investment Manager Services division.
"Managers must differentiate themselves through increased transparency,
enhanced risk management, and reporting as well as better overall client
service to gain and retain assets post-financial crisis and post-Madoff.
We've been making investments in new technologies and enhancing our services
to help our clients do just that over the past 18 months and we'll continue
to help them stay ahead of the curve."
Transparency is still a concern, as more than two-thirds (70 percent) of
those polled pointed to a lack of transparency as their biggest worry, up
from 56 percent in 2009. As for the types of information sought, more than
three out of four respondents want risk analytics from managers — a category
of information that didn't even appear in the top 10 last year. Liquidity
remains top-of-mind as well, as more than half (58 percent) of investors
named liquidity risk their biggest worry in hedge fund investing, with more
than 40 percent saying they have taken steps to enhance the liquidity of
their hedge fund investments.
The report also noted that investors are not relying on regulation to
improve hedge fund disclosure, liquidity, or risk management. Nearly
one-third (30 percent) of respondents cite "limited regulation" as a primary
concern of hedge fund investing. As investors are proactively seeking to have
their concerns addressed, managers are responding.
"The hedge fund managers best equipped to compete prospectively will be
those able to clearly articulate their value proposition and source of alpha,
as well as demonstrate institutional-quality operations and risk management
infrastructure," says Masterson.
The white paper is published by the SEI Knowledge Partnership, which
provides ongoing business intelligence and guidance to SEI's investment
About SEI's Investment Manager Services Division
SEI's Investment Manager Services division provides comprehensive
operational outsourcing solutions to global investment managers focused on
mutual funds, hedge and private equity funds, exchange traded funds,
collective trusts, and separately managed, as well as institutional and
private client, accounts. The division applies operating services,
technologies, and business and regulatory knowledge to each client's business
objectives. Its resources enable clients to meet the demands of the
marketplace and sharpen business strategies by focusing on their core
competencies. The division has been recognized by HFMWeek as "Most Innovative
Fund Administrator (Over $30bn AUA)" and "Best Funds of Hedge Funds
Administrator (Over $30bn AUA)." For more information, visit
SEI (Nasdaq: SEIC) is a leading global provider of outsourced asset
management, investment processing and investment operations solutions. The
company's innovative solutions help corporations, financial institutions,
financial advisors, and affluent families create and manage wealth. As of
September 30, 2010, through its subsidiaries and partnerships in which the
company has a significant interest, SEI administers $402 billion in mutual
fund and pooled assets and manages $164 billion in assets. SEI serves
clients, conducts or is registered to conduct business and/or operations,
from numerous offices worldwide. For more information, visit
About Greenwich Associates
Greenwich Associates provides research-based strategy management services
for financial professionals. Greenwich Associates' studies provide benefits
to the buyers and sellers of financial services in the form of benchmark
information on best practices and market intelligence on overall trends.
Based in Stamford, Connecticut, with additional offices in London, Toronto,
Tokyo, and Singapore, the firm offers over 100 research-based consulting
programs to more than 250 global financial services companies. For more
information on Greenwich Associates, please visit www.greenwich.com.
Services provided by SEI Investments - Global Fund Services Limited (Reg.
in Dublin No. 242309), SEI Investments Trustee & Custodial Services (Ireland)
Limited (Reg. in Dublin No. 315393), and their affiliates, which are all
wholly owned subsidiaries of SEI Investments Company.
SEI Investments - Global Fund Services Limited and SEI Investments
Trustee & Custodial Services (Ireland) Limited (Styne House, Upper Hatch
Street, Dublin 2, Ireland) are authorised by the Central Bank of Ireland
under the Central Bank Reform Act 2010.
This material is not directed to any persons where (by reason of that
person's nationality, residence or otherwise) the publication or availability
of this material is prohibited. Persons in respect of whom such prohibitions
apply must not rely on this information in any respect whatsoever.
Dana Grosser of SEI, +1-610-676-2459, dgrosser at seic.com; or Media, Rory King or Katy Hall, both of MHP Communications for SEI, +0203-128-8100, seiims at mhpc.co.uk
Tags: Dubai, January 18, Middle East, SEI, united arab emirates