Competition Makes for Innovation in Hedge Fund Business

By Andrew Rickard | December 05 2014 01:45PM

A recent survey conducted by Ernst & Young (E&Y) reveals that hedge fund managers hope new products will attract investments and fuel asset growth in an increasingly competitive market.

During the previous five years hedge fund managers tended to focus on issues such as transparency, cost containment, restructuring operating models and adapting to heavy regulatory burden. But now, E&Y says they are shifting their attention back to growth; 32% of survey respondents said that launching new product types was their top priority, 19% said that the primary focus was increasing penetration with existing client types, and 19% said that the number one goal was to access new investor bases within existing markets.

“New products, as well as investing in the business, will allow managers to attract more assets from new and existing investors,” comments Gary Chin, financial services partner and Canadian wealth and asset management industry leader at E&Y. “Managers who focus on reducing business-risk concerns and customizing products which produce alpha for their investors will open up new types of investor bases that may not have historically invested in hedge funds.”

However, E&Y points out that this is easier said than done. “Managers must beware the herd mentality when considering a new product launch. The global asset management industry can offer lessons about what happens when new product expansion happens too rapidly.”