Hedge funds facing shake-up in wake of Madoff scandal
THE Irish fund administration sector is set for a major shake-up as hedge funds adapt to the post-crisis, post-Madoff era, according to new research.
The study by State Street surveyed 400 hedge fund managers in North America, Europe and Asia for their view on industry changes coming over the next five years.
Increasing regulation is one driver of change for the hedge funds industry, but the main catalyst for change is investors seeking greater transparency over how their assets are being managed, the survey found.
Over half of the hedge fund managers interviewed in Europe said investors demanding greater transparency into risk and fund performance was a main driver of change in the sector. As well as transparency, the report, called 'The Next Alternative: Thriving in a New Fund Environment', said investors were pushing back against fixed fee structures.
A battle between funds for investor backing means more managers are prepared to negotiate on the traditional fee structure of 2pc a year in charges, plus 20pc of profits
"The silver lining of the 2008 crisis is that the hedge fund industry is becoming an increasingly investor-friendly environment, and is well placed to prosper as a result," said Patrick Hayes, head of hedge fund operations in Ireland for State Street.
Much of the change reflects the growing importance of institutional investors, which have traditionally demanded greater oversight of investments than some traditional hedge fund investors.
The ongoing fall-out from the Bernie Madoff scandal in the US has also made the demand for greater access to data.
Investors also cited a demand for more liquid investment structures at fund level as a key driver of change.
Almost half of State Street's 2,200 Irish staff work in its "alternatives" unit, including providing independent asset valuation and fund administration services to hedge funds for their investors.
Demand for greater transparency and more regular reporting by investors were likely to boost the demand for fund administration services, where Ireland was now a leading location, said Mr Hayes.