Hedge funds face new challenges
Hedge funds already grappling with margin compression and heightened competition for asset growth are now also facing regulatory challenges, according to a new report issued by Ernst Young (EY).
The EY 2015 Global Hedge Fund and Investor Survey has found that hedge fund managers are experiencing the ripple effects of new regulations on banks and prime brokers, with funds facing increased trading fees and broader changes to business relationships.
It said these dynamics had served to place additional pressure on margins and were leading managers to seek new growth strategies.
Commenting on the findings of the report, the company's Oceania Wealth and Asset Management Leader, Antoinette Elias, said the dynamics were the newest challenge to an industry continuing to grapple with margin compression, heightened competition for asset growth and ongoing technology investment requirements.
"All forms of financing are becoming more expensive for the majority of managers, and this has a direct effect on overall trade economics. Investors will be indirectly affected by the increasing costs and will need to rely on communications from the manager to understand the full effect on the fund's performance," Elias said.
"In the Australian market we are seeing a range of new funds being launched. These funds, like existing funds, are also facing the challenge of delicately balancing increasing costs with increased competition to attract investors," she said.
The key findings of the EY survey were that 29 per cent of funds surveyed experienced prime broker price increases in the past year, with 22 per cent expecting further increases.
The survey found hedge fund managers were exploring alternative, non-traditional financing sources and that asset growth remained the top strategic priority for 57 per cent of hedge fund managers.
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