Findings presented in a 2015 investment report published by SWIFT, a global financial cooperative which provides a secure information exchange network which is utilized by more than 10,800 financial institutions, raises current fund manager ongoing concerns related to regulations and collateral management.
Listed as the single largest source of expenditure, regulation issues related to know your customer, anti-money laundering and sanctions screening compliance continue to be addressed as operational pain points by 75% of surveyed managers.
European Market Infrastructure Regulation as well as Dodd Frank Act OTC derivative clearing requirements are changing managers relationships with investment banks from traditional bilateral relationships to newer trilateral relationships with clearing brokers and central counterparty clearing houses. This change has resulted in altered requirements as the clearing houses primarily require cash or that bonds meet only initial margin calls, with cash only to meet variation margin calls. Investment managers believe that this collateral optimization represents a real performance threat in terms of the delay implications of up front margin, as well as new costs in implementing the clearing requirement.
In addition to these fund issues, Hedge funds face additional challenges created by performance issues, particularly in 2014 with weighted performance nearly 8 points below the 11.4 percent gain in S&P 500, Global Market uncertainties in the oil and European currency markets as well as those issues created by new AFIMD and Dodd Frank Act Regulations.
Several analyses focus on optimistic Hedge Fund performance citing 2018 forecasts estimating a rise to $4.81 trillion from $2.63 trillion at the close of 2013. 74% of these assets are expected to be accounted for by institutions. Additionally, risk leverage strategies which previously focused on an alpha, excess return benchmark to re-categorization to beta risk, focusing on investment return streams.
Expressing its vote of confidence in hedge fund management, Saint Paul Teacher’s Retirement Fund Association allocated $55 million to Entrust Capital, Inc. in the 2nd quarter of 2014.
Formed in April 1997 in New York, New York by three former Goldman Sachs managers with approximately 125 clients and $750 million of assets (http://www.nytimes.com/1997/05/09/business/three-goldman-managers-start-a-firm.html), today employee owned EnTrust manages over 12 Billion in assets utlizing its fund of funds alternative strategies platform. Still managed by founders Michael Horowitz and Gregg Hymowitz, Entrust services high net worth individuals, pensions, profit sharing plans, charitable organizations, corporations, foundations, and endowments.
Investment funds continue to meet regulatory and market challenges in 2015.