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Digital Subscriptions > The Hedge Fund Journal > February 2017 > Will Adapting To Today’s Evolving Demands Help You Stand Out Tomorrow?

Will Adapting To Today’s Evolving Demands Help You Stand Out Tomorrow?


Executive summary

Shrinking returns and escalating investor demands. Downward pressure on fees and unrelenting requirements to have robust operating models. This year, competing forces came together to culminate in the perfect storm. In a year marked by lackluster performance and rising investor expectations, one inevitably asks: Will the challenges of today pave the way to a more successful tomorrow? That all depends on how you respond. As we look back on the year that has passed and look ahead to 2017, a few points come into sharp focus. Differentiation has become the touchstone of the future, and those funds that strategically embrace change for the right reasons and modify their business model in a way that responds to investor demands will be the ones that prosper going forward. Today, the pace of change is accelerating, and the magnitude of its impact and relevance are amplifying. As you turn the pages of this, our 10th annual Global Hedge Fund and Investor Survey, Will adapting to today’s evolving demands help you stand out tomorrow?, we hope the observations that have been gleaned help contribute to an ongoing and healthy dialogue that promotes the continued development and advancement of the global hedge fund industry.

First, we would like to extend sincere thanks to those managers and investors who provided viewpoints into the direction and development of this survey, as well as express appreciation to the 100 managers and more than 60 investors who gave their time and insight to provide such robust results. We believe that this combination of perspectives provides invaluable observations — both commonalities and differences — that continue to drive and shape our industry.

The change continuum

It is important to note that many of the key themes that we are talking about this year are those that have developed over the course of many years, and are now being thrust to the forefront as external pressures and competition for capital mount. The directive for managers has never been clearer: adapt or be left behind.

Key observations

This year, our survey focused on a variety of interesting themes, a few of which are briefly highlighted here.

The voice of the investor

2016 has revealed an unprecedented change in the appetite of investors. More so than ever, investors have achieved a level of sophistication that is challenging managers to more thoroughly explain how their offering achieves specific objectives within investors’ overall portfolios. Almost half of investors are continuing to actively seek out non-traditional products, and when it comes to investing in hedge funds, their choice is segregated accounts that generally allow for customization that more closely align with their specific needs. In addition, investors are demanding more and paying less. Many investors who have utilized low-cost, passive investment options or those who have reduced their reliance on money managers altogether and are trading on their own behalf are challenging the fee terms of their funds. And while management fees have continued to come down across funds of all sizes, investors are not materially any more satisfied with the fees they are paying relative to past years. Pressure on fees is not likely to let up, which begs the question: How do fund managers achieve scale to maintain profitability?

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