Transparency, fees, main hedge challenges-managers
MONACO, June 15 |
MONACO, June 15 (Reuters) - Hedge funds are facing growing pressure for more transparency and lower fees as investors seek to better understand their investments and get more perceived value for money, managers said on Tuesday.
The increasing number of institutions such as pension funds investing in hedge funds means greater demand for a clearer idea of the strategies they are investing in and how the people that run them are paid, managers said at the GAIM hedge fund conference.
"The institutionalisation of the business has brought about a sea change in terms of transparency," said Rick Sopher of LCH Investments, which invests across a range of hedge funds.
Sopher said while his investment company did not always require managers to disclose all their positions daily, "we like to see once in a while the full portfolio."
Veteran hedge fund strategist Byron Wien, now vice chairman at Blackstone Advisory Services (BX.N), agreed that investors need to understand the risk needed to produce the returns in order to evaluate managers.
"How much leverage it takes to produce the performance, that is a real measure of a manager's skill," said Wien. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a Reuters Insider interview with Byron Wien click: link.reuters.com/vat89k ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Even so, investors should be careful what they ask for, as excessive transparency on the contents of the portfolio could put managers at a competitive disadvantage, Wien said.
"From a manager's point of view, especially if you have a large short position, you don't want it to get around, you don't want people to gang up on your shorts," he said.
Managers use short positions to bet on an asset price falling, selling borrowed securities then buying them back -- they hope -- at a lower price.
But if short positions are public, other investors can bid up the price of the securities, forcing the manager to close the position to contain losses, pushing up prices further in what is called a "short squeeze".
However, most managers were prepared to be more open about their top positions, the geographical breakdown of their holdings and the catalysts that could affect returns, said Peter Schoenfeld, CEO of PSAM, which looks to make money from events such as potential mergers.
Investors also want to know their interests are well aligned with those of the managers and so are prepared to pay up for performance fees, which generally mean funds have done well, while limiting what they pay a fund just to manage their money.
Management fees, used to finance a fund's running costs, are being questioned by investors, particularly at poorly performing funds, and many have cut these fees, said Wien.
Investors say high management fees encourage funds to focus on gathering assets rather than generating returns, and pressure on these fees intensified after data showed the bulk of managers have not made money for investors, Sopher said.
"There's no pressure that fund of funds are even more challenged by fee pressure than single funds. It's a pretty rare fund of funds that has generated more money for investors than it has taken in fees," he said. (Editing by David Holmes)
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