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New Managers March 2019

PERSPECTIVES: Hedge fund managers and service providers rethink business models in the era of low fees

 

Hedge fund managers and service providers rethink business models in the era of low fees

Delegates at the recent Opalesque Cayman Roundtable say that managers and service providers are rethinking business models in response to growing pressure to cut costs. As a result, the industry is experimenting with new product types, investor terms, and fee structures that are designed to provide better alignment of interests.

Product innovation Caroline Heal a Partner at law firm Walkers says that she's seeing emerging managers come to market with founders classes that have special liquidity rights and fee terms as well as tiered management and performance fees linked to AUM. Managers are also looking at fund structures. New funds are being created with less frequent redemptions and differing allocation structures, including rolling commitments similar to the capital calls that are common in private equity. Additionally, some managers have restructured existing products in order to better align them with investor expectations.

"It's interesting to see the way managers are adapting to the changing marketplace," Heal said. Back office re-vamp The back office is also being updated and streamlined in response to regulatory and investor pressure. More emerging managers than ever before are outsourcing some if not all of their operations. "Outsourcing is seen as more of a positive by investors and managers nowadays," said Craig Smith, a Partner at PwC Cayman Islands. "When we first saw this happening 7-10 years ago, it was met with a certain degree of skepticism.

But the strength and professionalism of the ecosystem of outsourced CFOs, COOs, and other functions have helped." Smith adds that outsourcing is often more cost-efficient for emerging managers that are still building their businesses. Outsourcing to known players in the industry can also streamline due diligence because investors are already aware of most of......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
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