Monday, May 23, 2016

Maximizing growth opportunities for hedge funds

Over the years, hedge funds have grown in popularity and have piqued the interest of those who are looking to meet their financial goals and maximize their capital gains.

Now one of the largest types of alternative investments, hedge funds raked in capital amounting to $2.9 trillion in the fourth quarter of 2015. According to Hedge Fund Research’s report released earlier this year, this is equivalent to a rise of up to $22.8 billion compared to the previous quarter. It is also quite noteworthy that hedge fund assets increased while other forms of investments declined.

The reliable performance of these alternative assets in the industry led financial experts to dub hedge funds as critical and promising tools in the global economy. In fact, professional services firm PwC said in its report that hedge funds will rise to even greater heights in the next five years. It also predicted that hedge fund assets will double and reach up to $4.6 trillion to $5 trillion in 2020.

Along with the projected growth of the hedge fund industry, several opportunities and trends are also expected to arise. Healthy competition will continue to challenge fund managers to innovate and strategize. They will also have to revolutionize their business models in order to keep up with the dynamics of the financial market.

A major growth opportunity for asset management firms is the diversification of revenues. Experts say that those with diversified products are more likely to survive the volatile financial market. These companies also prove to be more resilient and are able to continue managing their funds even when a once profitable product suffers from a downturn.

In hedge funds, diversification of revenues includes changes in capital sources, in markets they invest in, and in services they provide. Fund managers expect that public sector pension funds and sovereignty wealth funds will play an important role as primary capital sources in the next five years. The increasing accessibility within the global market will also permit them to invest in and focus on a different group of countries, as some see more opportunities in emerging and frontier markets. Moreover, the trend of having multi-strategy offerings with increasing operational complexity will also continue. Clients will more likely go for managers who offer customized solutions to address their needs.

To seize and maximize these growth opportunities, it would be wise to choose asset servicing partners who have extensive industry experience. Their expert understanding of the constantly evolving conditions of the financial market, as well as the roster of services they offer, are also important factors that should be looked into.