Regulation has many managers expecting competition to level out.
Managers expect competition to decrease somewhat as a result of the high barrier to entry for the hedge fund industry. Three-quarters of respondents said that they expect the number of hedge fund managers to either decrease or stay the same over the next five years. Only 24 percent said they expected numbers to increase (driven largely by respondents headquartered in North America).
Regulation, in particular, continues to pose serious challenges for the vast majority of managers and was cited by 77 percent of respondents as the largest threat to the growth of the industry over the next 5 years. Funds headquartered in Europe and Asia-Pacific were more likely than those in North America to cite regulation as a potential limiting factor to growth (81 percent and 83 percent respectively, versus 67 percent for North America).
Eighty-four percent of respondents also said that their operating costs had increased as a result of compliance obligations. The remainder said that costs had stayed the same (nobody suggested that their costs had decreased). Almost half (46 percent) said they worried about the potential impacts of underperformance, while four-in-ten said they saw pricing pressures as a significant barrier to future growth.
Almost half of respondents said they recognized that if they underperformed, they might see a loss of assets while 4 in 10 said they saw pricing pressures as a significant barrier to future growth. Access to capital and potential reductions in dealer balance sheets and risk capacities were also cited.
KPMG partnered with the AIMA and the MFA to conduct a comprehensive, global survey of hedge fund managers around the world.