KPMG survey on the future of alternative investments - Regulation an unwelcome challenge for hedge funds
08 June 2010
Transparency was also seen as critical and gained the biggest response from investors. A majority of investor respondents said they saw transparency as a challenge. Relatively few managers believe issues such as taxation, systemic risk and shortage of talent could be a problem.
Regulation and governance are seen as the major challenges for the alternative investment industry in the next three years, according to a global survey of investors, managers and administrators.
Almost all administrators, three-quarters of managers and two-thirds of institutional investors cited regulation as one of the industry's greatest challenges when asked by KPMG for its Future of Alternative Investments report.
Over half of investors (57%) said they did not welcome the expected growth in regulation of the industry.
Transparency was also seen as critical and gained the biggest response from investors. A majority (78%) of investor respondents said they saw transparency as a challenge.
Relatively few administrators or managers believe issues such as taxation, systemic risk and shortage of talent could be a problem. Just 20% of managers and 6% of administrators thought systemic risk was a challenge for the industry despite the fact that mitigation of systemic risk is the reason given for many regulatory proposals currently on the table.
Well over half of all respondents and almost three-quarters of fund administrators said they expected regulation will have a negative impact in Europe. The impact of regulation was expected to be less in the US, although more investors said US regulation would have a negative impact than European regulation.
The survey revealed that investors have an appetite for alternative investments. However, in the future this is more likely to be through a direct allocation to a hedge fund or through a managed account than through a fund of funds.
A significant number of institutional investors (67%) said they expected allocations to funds of funds to decrease over the next three years.
Despite a growing move for hedge fund managers to domicile funds onshore, a majority (81%) of investors said onshore locations made little difference to them.
All investors said they took fund servicing issues seriously and 67% said the recent financial crisis and scandals had had a high impact on them.
The survey also showed that fund administrators are running at or near capacity. Almost three-quarters (74%) of administrators said they were running at between 71% and 100% of core capacity. Talent and technology were cited as particular issues.
Administrators expect to move increasingly into areas such as front and middle office, risk management and performance measurement in the future.
The report's principal author, KPMG partner Anthony Cowell, said the results showed investors were increasingly in the driving seat and the industry was undergoing a period of "profound change".
© KPMG
