Survey: Greater Governance to Increase Alternatives

In a study of alternative asset managers, RBC Dexia found that a clear majority of hedge funds believed greater governance of alternative investments could result in an increased allocation to the sector.

(April 26, 2010) — Better governance falls behind greater regulation as way to lure more investors to the hedge fund industry, according to a new survey by RBC Dexia.

The survey suggests that following the financial crisis, hedge funds were one of the key casualties and heightened regulation and transparency were inevitable. Concern about financial stability, magnified by damaging episodes such as the Bernand Madoff scandal, drew attention to the alternative investment industry and regulators became increasingly willing to examine new rules to improve investor confidence in alternative financial instruments.

Sixty-one percent of the hedge funds surveyed said better governance could lead to more capital being drawn to the sector. Just more than half either thought it had no impact (40%) or had no opinion (12%).

Additionally, 30% of respondents said greater regulation would result in increased allocations to the alternative sector. Another 18% thought regulation would draw assets away from the sector and 52% said it would have no impact.

For more stories like this, sign up for the CIO Alert newsletter. 

“The alternatives sector suffered during the recent turmoil, but our survey shows that good governance and more transparency will only increase the global appetite for these types of funds,” said Rob Wright, global head of Product & Client Segments at RBC Dexia, in a news release. “Use of a specialist service provider has gained recognition amongst hedge fund managers since the financial crisis. And it is clear that they are in a position to enable funds to develop and implement new structures in an efficient and cost-effective way.”

The survey also showed that larger players would hire more staff to deal with the requirement for greater governance, yet smaller players said they would outsource to third parties to fulfill requirements.

RBC Dexia surveyed 57 respondents worldwide. Half of the respondents represented single manager funds, 39% were funds of funds and 9% both, according to the release. A significant 42% of respondents were handling assets under management worth $1 billion or greater. Respondents were global with 47% having their main location in Europe (40% continental Europe and 7% UK), 37% in North America, 14% in Asia-Pacific and 2% in the Middle East.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

(April 26, 2010) — The UK Financial Services Authority (FSA) has demanded the Pension Corporation explain its investments, expressing concerns about the investments the corporation was making for policyholders.

Increasingly, trustees of company pensions seek to reduce risks in their schemes by offloading the responsibilities and balance sheet liabilities of company pension funds. The FSA’s demands reflect a stricter approach toward insurance companies, particularly for newer businesses acting as consolidators.

“The insurance market got through the recession in better shape than the banks, but there were some close calls behind the scenes,” said a source to The Independent. “The regulator is focusing hard on the sector, in particular those newer businesses in the buyout world.”

The regulator’s demands came in the form of a letter to the Pension Insurance Corporation (PIC), the parent company of Edmund Truell’s specialist insurer, which manages about £3.3 billion worth of assets managed for 45,000 pension holders, The Independent reported on Sunday, adding that the PIC has since addressed the issues highlighted.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Since last year, the Pension Corporation, which posted a profit of more than £200 million in February, has been working to raise 600 million pounds ($942 million) in new funding as it looks to profit from the growing desire of UK companies to insure their pension liabilities. JPMorgan has taken the lead with coordinating the capital-raising.

In other news, while insurance funds have traditionally chased more conservative investments by mainly relying on fixed income and cash, the Pension Corporation revealed plans earlier this month to increase its exposure to risker assets, including real estate and hedge funds. Chief Financial Officer Rob Sewell told Reuters that the specialist insurer could invest up to £100 million in its first allocation to property. According to the news service, Pension Corporation now has around a 10% allocation to hedge funds and private equity.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742