NEW YORK (HedgeWorld.com)--As public investment companies continue to expand into alternative asset management, the popularity of hedge funds increases as does the potential for increased regulatory oversight, researchers at Freeman & Co. concluded in the firm's fourth quarter report.
Freeman's research tracks, on a quarterly basis, the growth of the industry, and officials there believe that hedge funds and hedge fund of funds will be under a higher level of scrutiny due to the demand for the strategies.
Public companies that are starting their own hedge funds likely will raise the standard for what is expected in the industry, according to Freeman. The only downside is that smaller hedge fund managers might be pushed out because of the increased cost of legal and compliance thanks to increased regulatory oversight.
Over the next five years, new assets will continue to flow into hedge fund strategies and, according to Freeman, will be concentrated among the largest money management firms in the world. The larger firms have the advantage in marketing, distribution, structured product capabilities, reputation risk and the all-important "sleep well at night" factor for trustees and institutions, the report stated.
Large allocations to hedge funds also will have an effect as the interest from large institutional investors such as the California Public Employees' Retirement System and General Motors Pension Fund continues. Freeman predicts an increase in regulatory interest and some increase in fraudulent events due to more investor interest in that asset class.