Forty-three per cent of hedge fund investors surveyed by Deutsche Bank AG in March said they were considering making a portion of their investments through managed accounts, with 9 per cent of investors already doing so.
Managed accounts are costly both for investors and hedge fund managers. With managed accounts, clients can start demanding separate reporting, different transparency and they can change their investment guidelines.
Rob Gleeson, an analyst at Financial Express Research, believes this is the continuation of a trend that has been going on for some time.
He said: "Institutional investors are no longer prepared to put up with the unreasonable behaviour of hedge fund managers with regard to transparency and liquidity.
"When funds were making a healthy return trustees could put up with these conditions, but expect demands for transparency and liquidity to become the norm as institutional investors start to reassess the additional risks involved with hedge funds."
The European Commission’s plan to regulate hedge funds – due to be published shortly - has come under attack as hurried and carried out without 'proper consultation' by law firm Eversheds.
Cherine Radwan, a solicitor at Eversheds, said: "The proposed EU directive dealing with the regulation of alternative investment funds has been drafted in a matter of a few months rather than the more customary time frame of a year or more and without proper consultation.
"This suggests that the directive will be a political sop rather than legislation which is properly tailored to the market in which it operates and hedge fund managers and private equity firms are rightly nervous about its contents.
"Given that the vast majority of hedge funds and some private equity funds are established offshore, the directive will have to focus on the regulation of EU based managers or operators of such funds, many of whom are already regulated in the UK. The only thing that is clear at this stage is that such an important directive, if not properly drafted and consulted on, has the potential to severely damage and constrain the viability of the alternative funds sector going forward."
France has warned that Europe risks opening the door to a 'Trojan Horse' of offshore hedge funds if it adopts the EC plans.
French finance minister Christine Lagarde said on Monday that the proposed legislation did not go far enough and criticised plans to allow offshore funds from territories that have reciprocal agreements to trade in Europe.
"The Commission wants to create a system of mutual recognition," Lagarde said. "This is the kind of system that will open the door to a fund from the Cayman Islands that has never been regulated by Europe. The danger is that this could become the Trojan Horse of offshore funds."
Reacting to the comments, Ronald Paterson, a partner at Eversheds, said: "It seems clear that the activities of hedge fund managers will be more highly regulated in future, both in the EU and the US. The way in which this is to be done remains highly controversial and it is likely that private equity funds, real estate funds and others will be drawn in to the same system of regulation.
"If there is to be pan-EU regulation of these funds that must include a pan-EU private placement regime governing which institutional and sophisticated investors these funds can be sold to, so the stakes are high for all concerned.
"In devising the right regulatory system for these types of funds it is important to bear in mind that, as The Turner Review demonstrated, hedge funds were not the cause of the global banking crisis and hedge fund leverage is well below that of banks. The UK system of regulating hedge funds has worked well and provides a sound model for evolving a system of pan-EU regulation."
Performance of various hedge fund strategies over the last six months
Source: Financial Express Analytics