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SEI Study: Funds of Hedge Funds Must Adapt Business Model to Remain Competitive
OAKS, PA, Dec 05, 2012 (MARKETWIRE via COMTEX) --
According to a global study released today by SEI (NASDAQ: SEIC),
there are signs of optimism for funds of hedge funds (FoHFs) as both
investors and managers see the model as resilient and relevant to the
long-term investing landscape, despite declining assets and recent
negative headlines seeming to signal their decline. In fact, nearly
three-quarters of investors and consultants polled (72 percent)
believe FoHFs still play a valuable role in institutional investment
portfolios, while 84 percent of those polled believe that FoHFs will
exist 20 years from now -- assuming they evolve to address growing
investor concerns. The report, titled "The Evolving Funds of Hedge
Funds Model: Seven Ways to Reinvention," reveals the need for FoHFs
to adapt to meet evolving investor needs and business challenges,
while providing insights to help them remain relevant and
competitive.
According to the paper, most investors and consultants believe FoHFs
have a window of opportunity to reinvent their business models to
address recent dissatisfaction and disconnection with investors, as
well as concerns over transparency, liquidity, and fees. When it
comes to fees, more than two-thirds of investors and consultants
surveyed (68 percent) believe they are generally too high for the
value delivered. Despite the concern over fees, increased
transparency and liquidity were identified as the most important
factors in making FoHFs more competitive by investors and
consultants. Managers believe that increased liquidity and a greater
ability to generate demonstrable alpha are the most important factors
in making FoHFs more competitive. The study outlines seven areas
where FoHFs can achieve the innovation necessary to change investor
perspectives and become more resilient and flexible moving forward,
including providing greater customization, more concentrated or
specialized portfolios, and completely revamping fee structures.
"The study shows that while there is certainly a need for funds of
hedge funds to adapt to be more competitive, the fact remains that
their core value proposition and what they offer is still relevant to
investors," said Ross Ellis, Vice President, Knowledge Partnership
for SEI's Investment Manager Services division. "The headlines are
awash with messages that call for funds of hedge funds to change
their fee structures and improve transparency, but that's really only
one aspect of it. While some managers are closing up shop, others are
innovating to meet the evolving needs of investors. We hope this
paper will help the industry better understand the challenges and
opportunities that exist for funds of hedge funds. The reality is
that the model is still valuable and important, and the window is
open for managers to create a fund of hedge funds version 2.0 that
captures this opportunity."
The study results suggest that despite recent struggles, many
investors still believe FoHFs are a vital resource for specialized
advice and expertise unavailable internally. In fact, 4 in 5
investors see FoHFs as an ongoing component of their investment
portfolios. According to the study, nearly half of investors polled
(48 percent) said the top reason their organization invests in FoHFs
is "to achieve better risk-adjusted returns." The next most cited
reasons by investors were "to augment our manager selection
capabilities/expertise" (44 percent) and "to get around small
portfolio size and limited organizational resources" (39 percent).
The study is published by the SEI Knowledge Partnership, which
provides ongoing business intelligence and guidance to SEI's
investment manager clients. To request the full paper, visit
www.seic.com/EvolvingFOHF.
About SEI's Investment Manager Services Division
SEI's Investment
Manager Services division provides comprehensive operational
outsourcing solutions to support investment managers globally across
a range of registered and unregistered fund structures, diverse
investment strategies and jurisdictions. With expertise covering
traditional and alternative investment vehicles, the division applies
customized operating services, industry-leading technologies, and
practical business and regulatory insights to each client's business
objectives. SEI's resources enable clients to meet the demands of the
marketplace and sharpen business strategies by focusing on their core
competencies. The division has been recently recognized by Buy-Side
Technology as "Best Outsourcing Provider to the Buy Side" and "Best
Fund Administrator," by Hedge Funds World Middle East as "Best
Service Provider," by Global Investor as "Hedge Fund Administrator of
the Year," and by HFMWeek as "Most Innovative Fund Administrator
(Over $30B AUA)" in the U.S. and "Best Administrator - Technology
Provider" in Europe. For more information, visit www.seic.com/ims.
About SEI
SEI (NASDAQ: SEIC) is a leading global provider of
investment processing, fund processing, and investment management
business outsourcing solutions that help corporations, financial
institutions, financial advisors, and ultra-high-net-worth families
create and manage wealth. As of September 30, 2012, through its
subsidiaries and partnerships in which the company has a significant
interest, SEI manages or administers $448 billion in mutual fund and
pooled or separately managed assets, including $195 billion in assets
under management and $253 billion in client assets under
administration. For more information, visit www.seic.com.
SOURCE: SEI
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