Excerpts from the article can be found below and the piece can be viewed in it’s entirety on FundFire’s webpage: FUNDfire
The need for an understanding of portfolio exposures became clear in 2008. “During the financial crisis, investors found themselves in the untenable position of not only suffering large losses, but discovering that they were exposed to risks they didn’t know they had,” notes Chrystalle Anstett, managing director at global placement agent Eaton Partners, where she leads project management for the firm’s hedge funds and public market strategies team. “Many investors were also disappointed by the lack of communication they experienced with some of their managers during that time period.”
Even as transparency and communication have improved in recent years, Anstett says, investors want more.
“Today, we find that when limited partners in a hedge fund say that they want transparency, what they are really looking for is confirmation that the general partner is aligned with them,” she adds. “Practically speaking, this means investors want meaningful reporting so they can fully assess their exposures; they want timely communication; and they want an understanding of the GP’s investment and economics in the fund, so that the LPs can determine if the manager is properly incentivized.”
Investors’ willingness to pay higher fees for greater transparency is “consistent with what we’ve seen, which is that investors are generally willing to pay fees if they are justified,” says Anstett. “Investors want to know where those fees are going, what they are being used for, and why. They also expect that the value they are receiving is commensurate with the fees being charged.”
There is no doubt hedge funds have come a long way in recent years from the days of a “monthly flash performance estimate,” Anstett says. “They are now including a discussion of the drivers behind that performance and the thinking that was behind significant trades.”
Some hedge fund managers are also being more proactive, for example by getting in touch with investors during a spike in volatility or when major current events impact the manager’s strategy. “Investors who are receiving this type of transparency from their managers do seem satisfied,” Anstett says.Back to News