Investors are leading the way in shaping the future of the alternative investment industry, according to a soon to be published global survey by State Street, in collaboration with Preqin.
The study titled, The Next Alternative: Thriving in a New Fund Environment, finds that fund managers see investor demands for transparency, favourable fees and liquidity at the fund level as three of the top five drivers of change over the next five years.
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George Sullivan, executive vice president and global head of alternative investment solutions at State Street, said: "Alternative asset managers that want to create a competitive edge need to balance meeting new requirements from investors and regulators while ensuring operational and performance excellence. The mainstreaming of this asset class debunks common misconceptions that have hindered opportunities for investors and fund managers alike."
Some of those common misconceptions about the alternative fund industry are:
Misconception: Alternative fund managers have been reluctant to offer greater transparency into fund performance and risk
Reality: Managers are reporting more information to investors, more frequently. 44% of fund managers have increased the amount of information they report on their holdings, risk and performance since 2008 and an additional 16% plan to do so over the next five years. Almost one third (32%) have increased their reporting frequency since the financial crisis.
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By GlobalDataCapturing, structuring and reporting data ‘on demand’ for stakeholders will give managers a clear advantage as investor demand for greater transparency in risk and performance was the most cited driver of change in the alternative fund industry.
Misconception: The era of major change in the alternative sector is largely finished
Reality: Growing competition means that alternative fund managers are reassessing their fee structures and seeking ways to differentiate their offerings with new product and investment strategies.
29% of alternative fund managers surveyed indicated they planned to add new investment strategies with in-house resources over the next five years, while 25% said they have done this since 2008.
Misconception: Alternative industry regulation is stifling growth and innovation
Reality: Although burdensome for many, the new era of heightened regulation is also creating opportunities for managers to distinguish themselves from peers and tap into investor appetite for increased transparency and oversight.
Of the 86% of alternative fund managers who expect their costs to increase over the next five years, largely driven by regulation, 75% are optimistic that this will not constrain their growth potential.
Sullivan said: "This survey highlights key changes that are coinciding with the growth and maturation of alternatives as an asset class and offers a glimpse into what the next five years will look like for the industry. Managers who remain innovative as they respond to demands from investors will be positioned for success in this new era where investors will look to employ alternatives more commonly than ever before."
Important trends and possible shifts in the industry over the next five years include: regional expansion; more managed accounts; more hybrid funds; and M&A activity is set to increase.
