Hedge Funds - The New Rules of Engagement

Pension and Investments magazine recently published the result of its annual survey and found that the 200 largest U.S.-defined benefit plans have continued to increase their allocations to hedge funds. Investments in hedge funds by the largest plan sponsors saw a 20.3% increase for the year ending September 30, 2012, with an even more impressive 67.1% over the past five years.


19 February 2013

Pension and Investments magazine recently published the result of its annual survey and found that the 200 largest U.S.-defined benefit plans have continued to increase their allocations to hedge funds. Investments in hedge funds by the largest plan sponsors saw a 20.3% increase for the year ending September 30, 2012, with an even more impressive 67.1% over the past five years. Clearly, the institutional community is searching for new sources of alpha, spurred on by record low interest rates and continued market volatility.

While this is certainly good news for the hedge fund marketplace, increased institutional participation comes with caveats, including a notably longer due diligence process, increased demands for transparency and greater communication requirements. Large plan sponsors (and their consultants) will expect their hedge fund managers to behave much more like their long-only brethren in providing investors with the information they want, when they need it and in a format they stipulate. What is not clear, though, is if the majority of hedge fund managers have built the infrastructure and operational capabilities to support this influx of institutional assets and the demands that go along with it.

Certainly, some managers have already embraced the notion that in order to sit at the institutional table, the business practices of the past will not be enough to fulfill the fund marketing and client service requirements of the future. Indeed, the new rules of engagement will require managers to look beyond just their staffing needs and examine the very fundamental structure of their investor communications processes. Implementing a comprehensive technology platform that can facilitate fund marketing, drive internal efficiencies and meet the transparency requirements of institutional investors will become a necessary endeavor for hedge fund managers to succeed in the pension marketplace.



Andre Boreas

Andre Boreas

Director, Alternative Investments Product Marketing, Intralinks