State Street debunks misconceptions about the Alternative Investment Industry

“Managers who remain innovative as they respond to demands from investors will be positioned for success in this new era where investors will look to employ alternatives more commonly than ever before.”

State Street released a new report titled “The Next Alternative: Thriving in a New Fund Environment” (September 2013). The report stresses that Fund Managers are adapting to the new order, finally.

Specifically, Fund Managers are reporting more information to investors and do so more frequenty. Finally, we appear to come close to mutually agreeable transparency levels. The report also examined the fee levels again. Not surprisingly, fees continue to be under pressure. One way to combat fee compression is to diversify into new product offerings which 29% of managers indicated they plan on doing over the next five years. Some 25% report that is what they have been doing since 2008. The burden of regulation is seen by some as an opportunity although they appear to agree that their cost base is going up as part of increasing regulatory scrutinity.

At CITE, we have been vocal about Transparency for many years and have always stated that it is not position level transparency that investors demand but rather (1) frequent access to the management teams and (2) to ad hoc reporting. We stress that product diversification is welcome in general to come closer to actually building businesses, further we maintain our view that the transition from a single strategy to a multi-product offering demands an exponential scaling of the underlying business. That is resources, including human resources, need to be carefully added. Lastly, our view is that the current regulatory regime may have been a step too far as public demand to put an end to ‘speculative’ investments has taken precendent over common sense. We feel that we will see a call to more pragmatic solutions over the next five years.