CHICAGO (HedgeWorld.com)–Investment consultants have kept constant watch over the growth of hedge funds in recent years. Mercer Investment Consulting US now is providing its commentary on hedge funds’ “institutionalization” dilemma and the greater role of funds of funds in institutional allocations.
The firm says that while specialist firms still tend to dominate the hedge fund business, traditional institutional managers also are making their mark in a growing number of hedge fund programs.
In a newsletter on hedge funds published this month, Mercer officials said that of the 25 largest mangers in its investment management firm database, 17 firms offered hedge funds. Concurrently, some hedge funds are offering long-only programs as lines begin to blur between the alternative and traditional sides of the money management business.
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From Mercer’s perspective, manager registration with the Securities and Exchange Commission will only help boost hedge funds as investors realize the added procedures and audit processes that provide legitimacy to the industry.
So far experts say that 30% of all hedge fund managers have registered with the U.S. regulator, Mercer officials wrote in their brief newsletter.
Most of the hedge fund managers Mercer reviewed have been registered with the SEC for some time. According to the consultants, managers that choose longer lock-ups to avoid registration are leaving investors at a disadvantage.
“As hedge funds become more and more institutional in approach and structure, Mercer clients have asked whether sufficient opportunities remain for hedge fund managers to generate alpha, a manager’s return that cannot be attributed to the market,” said Jeff Gabrione, a research consultant based in the firm’s Chicago office, in a statement.
While funds of funds have become popular among institutions, Mr. Gabrione said it is important to focus on how managers are able to put that new money to work.
Adapting to a Changing Landscape