The growing importance of institutional clients to hedge funds has caused a “metamorphosis” in the industry, says a survey of 150 managers.
Hedge funds of all sizes must now be more transparent, spend more time on due diligence and employ more compliance staff to satisfy demands from pension funds, charitable foundations and other institutions.
Before the financial crisis, most hedge fund capital came from family offices and high-net-worth individuals. But significant withdrawals from these segments have caused institutional investors to become the dominant clients. The survey by consultancy KPMG and the Alternative Investment Management Association said institutions now account for 57% of assets managed by hedge funds.
Hedge fund managers said they now spend twice as much time handling investors’ due diligence inquiries as in 2008 and almost all, 98%, have brought on at least one extra employee to handle regulatory compliance.
“The days when hedge funds catered almost exclusively to high-net-worth individuals and family offices are long gone,” said the survey.
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