While many hedge fund managers talk a good talk when it comes to culture, diversity and SRI, the real question is do they walk the walk? As noted, an increasing number of investors want to see their fund managers taking steps to foster change, even if relatively few have a concrete idea of what these endeavours should look like. In this final section, we examine the policies, procedures and initiatives managers have implemented and the emphasis investors place on them.
Perhaps more so than other soft factors, company culture is an essential aspect of running a 21st century business. Investors not only want to see a working environment that keeps employees appropriately incentivised, they want to see a culture that nurtures staff and creates a platform for quality investment decisions. And as competition has made it harder for managers to differentiate themselves by investment strategy, company culture has become an opportunity to demonstrate the unique qualities investors crave. Section three explores the latest sentiment on the topic.
If diversity is currently in the spotlight generally, few industries are feeling the heat more than investment management. The definition of ‘diversity’ varies greatly, and so to ensure focus, HFM has chosen to define it as relating specifically to gender and ethnicity. How diverse are hedge fund workforces – by gender and ethnicity – and do investors care? With this in mind, the following section takes the same approach as the first: gauging investor and manager sentiment on the topic, with the ultimate aim of understanding whether investors are asking substantive questions.
SRI (socially responsible investing) and ESG (environmental, social, governance) have been asset management buzzwords for more than a decade. But even now, most hedge fund managers wonder the same – does this apply to us? A culture of SRI is one thing. Hard and fast SRI rules is another. In this first section, we provide up-to-date investor sentiment on hedge funds and SRI. Are investors asking more SRI questions and, more importantly, how consequential are managers’ answers?
And so, to the crux of the matter. In 2018, which hedge fund managers feel in control of their prime brokerage relationships and where does that confidence come from? Having examined the forces at work and the context in which they play out, we finish by measuring how confident prime brokerage clients are in hitting revenue hurdles and receiving favourable pricing. What are the factors that make a manager feel in a position of power? Our final section provides the answers.
Though investor opinions are undoubtedly influential, their role in the manager-prime relationship still takes a back seat to manager actions. From the holistic view of a broker’s parent company to trading style and service consumption, the strength of a manager’s relationship with its prime relies on an increasingly complex and idiosyncratic mix of factors. In short, what works for one manager, will not work for others. This third section seeks to tackle these issues and, where possible, place them in context.
Any investor that expects its hedge fund managers to have a certain ‘tier’ of service provider indirectly hands providers in that bracket leverage over prospective clients. Following the financial crisis, this form of ‘stage one’ due diligence took on a new flavour, as investors redrew the lines for ‘safe’ prime brokers. This second chapter brings the story up-to-date. Do investors still expect primes of a certain tier and, if so, who makes the grade? Does ‘tier one’ even have an established definition? The answers to these questions offer additional insights into the balance of power.
As in any industry, the strength of a prime broker’s business is tied closely to the strength of its brand. Prime brokerage in general – and several providers in particular – have been in the headlines over the past 12 months and this report’s opening section seeks to identify where business, in terms of mandate AuM, and/or reputation have been affected. Because if one takes a hit, the other is sure to follow.
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