Financial advisors and their wealthier clients will have a lot more separately managed alternative accounts to consider next year, according to a new study by Aite Group, the Boston-based independent financial industry research and advisory firm.
A survey by Aite of some 400 small, medium and large hedge fund executives finds that the major growth area at these firms will be in the area of separately managed alternative accounts, with the number of firms offering such accounts expected to nearly double.
Also expected to increase, by about 10%, are the number of firms that say they will be offering new regular separately managed accounts.
“This means there should be significantly more competition in this area,” Danielle Tierney, analyst and author of the report, told On Wall Street, in an interview Wednesday.
Moreover, with more than two-thirds of the growth in the hedge fund industry expected to occur in the United States, that competition will be here, too.
The study also reports that hedge fund executives feel their biggest challenges in the year ahead will be complying with the new Dodd-Frank Financial Reform Act, monitoring counterparty risk, meeting clients’ performance expectations, staying abreast of trading markets and managing third-party outsourcing agents.
Some 47% of respondents said that meeting the reporting requirements of Dodd-Frank would be “extremely challenging,” with another 26% saying it would be “somewhat challenging.” As for adhering to the requirements of the act, 37% said it would be extremely challenging and another 37% said it would be somewhat challenging.
Also a challenge, they reported, would be meeting clients’ performance expectations, with 79% admitting that this would be either “somewhat” or “extremely” challenging for them.
Staying abreast of markets, given all the high-frequency trading and the many changes in infrastructure and technology, they said, would also be tough, with 79% again saying this would be either “somewhat” or “extremely” challenging.
Monitoring counterparty risk ranked high too on a list of tough issues, with 63% rating that as a “somewhat” or “extremely” challenging task.
Finally, on the list of key challenges, 47% executives said managing third-party outsourcing agents would be “somewhat” or “extremely” challenging tasks.