Hedge Funds looking to offer greater innovation to investors

Leading figures from the European asset management industry brought to the fore issues likely to be of critical importance to the success of the hedge fund industry in the immediate future at an event recently held in Geneva by Carne Global Financial Services (“Carne”), the leading independent adviser to the global hedge fund, mutual fund management and private wealth industries.

Speakers at the Future of Hedge Funds seminar included Antonio Borges, Chairman of the Hedge Funds Standards Board (HFSB), along with representatives of Credit Suisse Prime Brokerage Services, private bank Union Bancaire Privee, law firm, Lenz and Staehelin and fund placement and investment consultant Liability Solutions. The seminar was chaired by John Donohoe, CEO of Carne, in front of an audience drawn from wealth management, traditional and hedge fund industries, and included Swiss institutional investors.

The speakers addressed issues affecting the hedge fund industry, and their possible solutions. The effect of the current economic climate on the sustainability of hedge funds was regarded as highly important. Participants expressed a range of views on topics including the role of regulation, risk management, the role of prime brokers and the cost base of hedge fund managers.

Following an introduction by Mr Borges to the philosophy and recommendations of the HFSB, the panel discussed the importance and adoption of standards in areas such as asset valuation, reporting and risk management. The general view was that this should be a measured and practical approach rather than a sudden reaction to the current economic crisis.

In the view of some participants, existing hedge fund structures will be challenged and factors such as fees, lock-up periods and liquidity will come under scrutiny from investors. Against a back drop of an expected large number of fund closures managers will be forced to review their management style and complexity of their strategies, and the impact of reduced fees and investment horizons more closely aligned to their investors. Participants also discussed the role of wealth managers in advising their clients on different management styles, fund structures and the approaches of managers to fees.

The steps that hedge funds can take to strengthen themselves against the current turmoil was high on the agenda of the panel discussion: these included reviewing risk management and  cost control protocols and the benefits of using models such as shared platforms and outsourced services to reduce costs.

As well as offering their thinking on how fund managers can meet the challenges of the current market, the speakers also saw opportunities for growth in the future. In particular, the potential offered by UCITS III fund structures to managers to gain exposure to new investment flows resonated with both the panellists and audience.

John Donohoe, CEO of Carne, commented: “This event has been an excellent opportunity for leaders from different sectors of the hedge fund industry to share their thinking and explore the opportunities for development in the future. The current market emphasises the need for innovation, including implementing fee structures that closely meet investors’ specific needs, making cost savings where possible, and exploiting the opportunities offered by the range of fund structures available.”