Investors and hedge fund managers are failing to see eye to eye on the level of transparency being offered, according to Northern Trust.
In a new survey—conducted jointly with Asset International, CIO‘s parent company—the firm studied more than 100 hedge fund managers and 300 global institutional investors. They found investors were not as satisfied with the transparency they receive than managers believe to be the case.
While an overwhelming majority (90%) of managers believed that all or nearly all of their investors were satisfied with their current transparency, 55% of investors said they would like to see more.
In addition, of those investors who desired more transparency, some 78% said they would be willing to pay an extra one to three basis points in management fees to get it. US-based asset owners were more keen about taking on increased fees for transparency than their global counterparts.
“As the hedge fund industry becomes dominated by institutional investors, managers must continue to invest in their operations and infrastructure to meet the growing needs of these investors.” —Northern Trust
However, it would take more than costs to “bridge the transparency gap,” according to the report.
“It requires a balance where investors get the reports they need while managers retain ownership of their unique strategy,” said Peter Sanchez, CEO of Northern Trust’s hedge fund services. “We believe providing insight into risk is one approach to bridging that gap.”
The survey also found nearly 91% of investors considered independent oversight of risk either extremely or somewhat important, while only 13% of managers said risk analytics reporting was either outsourced or shadowed by a third party.
Managers and investors mostly agreed on their priorities over the next five years, Northern Trust said, particularly when it came to recruiting and retaining top talent. Some 56% of investors and 45% of managers ranked recruitment as their top priorities.
However, investors tended to value regulation—including regulatory reporting and investor due diligence—and operations and internal infrastructure more than the managers, according to the report.
“As the hedge fund industry becomes dominated by institutional investors, managers must continue to invest in their operations and infrastructure to meet the growing needs of these investors,” Sanchez said.
The report said investors and managers agreed that increased regulation post-financial crisis has helped “reduce the likelihood and severity of another.” But, some 34% of managers and 40% of investors remained skeptical and said these regulations had done nothing to prevent a future crisis.
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