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Report shows alternative funds are evolving

Jessel Mendes, partner at EY Bermuda Ltd and markets leader (Photograph supplied)

A newly released report from EY reveals that alternative funds are evolving to meet the challenges of today’s world, from the Covid-19 pandemic, to the growing importance of environmental, social and governance, to demand for digital asset exposure.

The 2021 EY Global Alternative Fund Survey found that adaptability has been a hallmark of the industry’s deft navigation of pandemic-related market disruptions, as managers have deployed new strategies and built customised products, leading to investors’ improved perception of the sector.

The 15th annual survey was based on conversations with 210 managers and 54 investors to shed light on today’s alternative fund landscape, as well as how emerging trends may shape the future.

It offers insight into the perspectives of alternative fund managers and also their institutional investors, whose changing priorities and expectations of fund managers feature strongly.

“In this fast-evolving investment environment, the alternative funds managers who are acting on the emerging trends highlighted in this report will be well positioned to thrive in the future,” said Jessel Mendes, partner at EY Bermuda Ltd and markets leader.

“Investors continue to maintain large alternative portfolios but shifts are occurring to asset classes like insurance linked securities which is encouraging from a Bermuda perspective.

“Fund managers who respond adeptly to the changing needs of investors and effectively incorporate ESG principles into their strategies can continue the trend of improved perception of their value.”

“Alternative fund managers have partnered with their investors to nimbly embrace opportunities during the market turbulence of the pandemic,” said Jeff Short, partner at EY Cayman Ltd and regional wealth & asset management leader.

“The industry is undergoing proactive transformation on several fronts, enhancing its value proposition.”

One of the key findings was that digital assets have become a mainstream trend.

“One in ten managers reported having current exposure to cryptocurrencies, while one in four expect to increase their exposure this year,” a spokesman for the company said. The special-purpose acquisition company market also caught the attention of investors and alternative fund managers responding, as 37 per cent of hedge fund and 28 per cent of private equity managers indicated they participate or are considering participating in some capacity in SPACs.

Additionally, public-private crossover investments grew as 40 per cent of hedge fund managers indicated they are participating in private market opportunities.

Another key finding was that strong performance in the face of market uncertainties has led investor perceptions to improve, with more than half (51 per cent) surveyed saying that the value provided by alternative fund managers has improved relative to a few years ago.

The report also revealed that competition of talent is heating up. Talent management was the top overall business priority for this year, with two in three managers identifying this issue as a critical area of focus.

“The research shows that ESG considerations are prominent for alternative fund managers and their investors for sound business reasons,” said Eleanor Fisher, EY partner and regional ESG leader.

“Sustainability policies and incorporation of diversity principles into talent management are at the heart of the industry’s ongoing transformation.”

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Published February 07, 2022 at 7:56 am (Updated February 07, 2022 at 7:51 am)

Report shows alternative funds are evolving

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