Almost half of all managers now believe that they will need to change their fund strategies in order to attract new investors and institutional capital. Our survey suggests that medium-sized funds seem set to see the greatest change.
Many suggest that the pressure to develop more customized solutions is already heating up. Almost two-thirds (66 percent) of respondents said they were already witnessing increased demand for ‘solutions’ such as managed accounts and funds of one from their investors. Forty-four percent say they already offer customized solutions to their investors with a further 22 percent saying that they are preparing to do so.
Clearly, the traditional ‘2 and 20’ approach to fees will likely continue to be the standard for those with more commoditized fund structures, but our interviews and our data suggest that managers are starting to play with fees as part of their approach to customizing solutions. “We have seen pressure on management fees but not performance fees,” noted one global multi-strategy asset manager. “At the end of the day we all recognize that we need to be more innovative in the way we structure new solutions to suit clients in the alternative space.” Indeed, the vast majority (84 percent) of respondents to our survey said that they expected investors and managers to compromise on fee arrangements over the next five years.
Many suggest that they have already started to customize their fee structures with 42 percent of managers saying they have experienced some change in their fees since 2008. Medium-sized fund managers, in particular, report experiencing higher levels of change and more downward pressure on fees than smaller and larger peers.
Hedge fund managers starting to plan for a change in investor demographics over next 5 years and are exploring developing and emerging markets.