Prior to the crisis, the primary source of capital came from non-institutional investors such as high-net worth individuals and family businesses; however institutional investors are now the leading allocators to hedge funds. This change means hedge funds have had to adapt to the new source of capital, and the demands associated with institutional investors - namely the need for a more robust operational infrastructure and thorough terms of due diligence.
"The increased due diligence demands of institutional investors are certainly being felt by Canadian managers," said Peter Hayes, Partner, National Director, Alternative Investments, KPMG. "That being said, the Canadian hedge fund market has always been heavily regulated and Canadian managers are well-positioned to meet the increased scrutiny from investors, regulators and others that many in the global hedge fund space are only just starting to experience."
The report, The Evolution of an Industry, is based on a survey and in-depth interviews of 150 hedge fund management firms globally with more than US$500 billion in assets under management. The report found that:
- Institutional investors now represent a clear majority of all assets under management with 57 percent of assets under management in this category
- 84 percent of all respondents in the survey indicated that they had increased transparency to investors since 2008
- The amount of time managers say they have spent handling due diligence inquiries from investors has doubled since 2008
- Hedge fund managers have significantly increased headcount to respond to regulatory compliance requirements (98 percent of respondents), and investor demand for transparency and due diligence
- New money injected into the hedge fund industry since 2008 has come primarily from North America, Asia-Pacific and the Middle East, while allocations from the European Union have held steady, and those from Switzerland have declined
"Institutionalization has been described as the continuing inflow of new institutional capital into the industry, but as this report demonstrates, it is also about increasing the sophistication of operational infrastructure with respect to transparency, compliance and due diligence," said Gary Ostoich, Chairman, AIMA Canada.
The new report is the second of a two-part series by KPMG and AIMA on the state of the global hedge fund industry. The first report looked at hedge fund industry performance [PDF 2.71Mb], risk and volatility.
KPMG LLP, an Audit, Tax and Advisory firm (kpmg.ca) and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative ("KPMG International"). KPMG member firms around the world have 145,000 professionals, in 152 countries.
The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.
AIMA is the hedge fund industry's global, not-for-profit trade association with over 1,300 corporate members (with over 6,000 individual contacts) in more than 40 countries worldwide.
Members include hedge fund managers, fund of hedge funds managers, prime brokers, legal and accounting firms, investors, fund administrators and independent fund directors. They all benefit from AIMA's active influence in policy development, its leadership in industry initiatives, including education and sound practice manuals and its excellent reputation with regulators.
AIMA Canada, the Canada National Group of the Alternative Investment Management Association (AIMA), was formed in March 2003 to act as the voice of the alternative investment industry in Canada. AIMA Canada now has over 80 corporate members. Additional information on AIMA Canada is available at www.aima-canada.org
Senior Manager, Media Relations
KPMG in Canada
James Burron, CAIA
Chief Operating Officer
Alternative Investment Management Association (AIMA) Canada
O: (416) 364-8420 C: (416) 453-0111