Survey: Greater Governance to Increase Alternatives

(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.

“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.