Aite Group Report Identifies the Building Blocks of Institutional Credibility for Hedge Fund Managers: Operational Efficiency, Robust Risk Management, Integrated Technology and More

Aite Group, an independent financial services research and advisory firm, recently released a report detailing the challenges faced by hedge fund managers in achieving credibility with institutional investors.  Based on interviews with 40 executives at global hedge fund managers, each with more than $900 million in assets under management, the report noted that “[f]irms overwhelmingly recognize that clients and prospects have a heightened interest in the stability and reliability of firm operations, and that maintaining systems which will promote client confidence in operations is now essential.”  The report described a credibility gap between hedge fund managers and institutional investors – a gap that can be plugged (albeit with significant effort and expense) via greater operational efficiency, identification and command of regulatory risk, enhanced risk management generally, appropriate and integrated use of technology, judicious outsourcing of selected functions, improved transparency and better information management.  This article provides greater detail on what it takes, according to Aite’s research, for hedge fund managers to establish institutional credibility on a sustainable basis – a prerequisite for effective marketing and capital raising.  See also “Top Ten Operational Risks Facing Hedge Fund Managers and What to Do about Them (Part Three of Three),” Hedge Fund Law Report, Vol. 6, No. 5 (Feb. 1, 2013).

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