Hedge funds are searching for ways to boost fund value, increase ROI, and ensure the sustainability of their businesses. In our view, few have the level of institutionalization in place to succeed.
In the aftermath of the financial crisis, hedge funds face growing pressure from regulators, investors, the media, and the public to increase transparency and enhance risk management.
Hedge funds face a myriad of regulatory initiatives designed to increase transparency and improve reporting. These include, among others, Dodd-Frank (including Form PF regulation), the Foreign Account Tax Compliance Act (FATCA), IRS form 5500 schedule C, and GASB Statement No. 53. Institutional investors, which accounted for 60% of hedge funds’ total capital in 2011, have substantial influence in determining how funds are managed today. These investors are becoming more rigorous in evaluating fund managers’ execution of investment strategies.
They are demanding higher quality reporting and infrastructure, and avoiding funds that fail to clearly demonstrate adherence to, and support for, regulatory risk management standards.