There is a new dynamic today between hedge funds, investors and hedge fund administrators, according to State Street Corp.’s new Vision Report, “Hedge Funds: Rebuilding on a New Foundation.”
In the post-crisis environment, there are six key criteria that will drive operational and risk management elements for hedge funds, according to State Street: investment strategy and performance, portfolio liquidity, portfolio transparency, new pricing and lockup periods, operational due diligence and the independence of custodians and administrators.
“The theme of transparency in the hedge fund and hedge fund-of-funds market continues to grow,” said Jim Tomeo, chief operating officer and senior portfolio manager at SSARIS Advisors, a hedge fund and fund-of-funds platform that is an affiliate of State Street Global Advisors. “Across the alternative investment industry, institutional investors are driving the evolution of all investment channels, from direct hedge fund investment, funds-of-funds, to managed accounts and other structures. Improved investor sentiment and positive inflows suggest reviving confidence across the board.”
George Sullivan, executive vice president and head of State Street’s alternative investment solutions group, added, “Institutional investors are increasingly taking great interest in how hedge funds manage operational infrastructure, choose administrators and provide for governance and best practices. Escalating client demand for operational control and transparency is driving funds to outsource many responsibilities in all asset types and investment strategies. By hiring administrators to assume a range of services, including data management, asset class coverage and portfolio risk analysis, fund managers can concentrate on generating alpha and distributing investment products.”