Investors force Fund of Hedge Funds to Research underlying Funds
Captain Obvious has taken over Reuters business desk and published this painful piece about the trouble that Fund of Hedge Funds are currently in. The trouble started when the institutional investors realized that the hedge fund managers are doing no research into the funds in which they are investing their investors money.
The $570-billion fund of funds industry faces the headache of conducting tougher background checks on managers and third parties like prime brokers, as well as researching hidden risks, while at the same time fending off client demands for fee cuts.
To sum the article up, Fund of Hedge Funds managers are not happy with the realization that they now have to use the high fees that their investors pay them for the reason they exist; to conduct the research needed to create a portfolio of hedge funds which is risk averse.
Their [the investors] ire has already helped push fees lower, indicating that the new demands are likely to put pressure on fund firm margins. A survey this month from consultancy finance showed 47 percent of funds would be able to charge a management fee of 0.9 percent or more on a $100 million investment, down from 57 percent a year before.
Institutional investors are not entirely free of blame in this situation. They suddenly realized that they that they too have to work for the money that their investors pay them.
“Transparency — I want to know what they are doing,” said Lars Rohde, chief executive of the 609 billion Danish crowns labour fund ATP. “We also cannot do a proper risk management with assets we do not know.”
With institutional investors struggling to find suitable FoHF’s to invest in, and Fund of Hedge Fund managers “fighting to survive” under the research requirements which are being put on them, we can only ask one question. Is there still room for Funds of Hedge Funds in the market?
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