By Simon Miller

Increased institutional investment has spurred hedge funds to grow operational infrastructure and increase transparency according to a report released today (21.05.2012).

The report, The Evolution of an Industry found that hedge fund management firms have increased their operational infrastructure in areas like investor transparency and regulatory compliance as allocations from institutional investors have increased.

“Institutionalisation has been described as the continuing inflow of new institutional capital into the industry, but as this report demonstrates, it is also about the increasing sophistication of operational infrastructure with respect to transparency, compliance and due diligence,” said the Alternative Investment Management Association's CEO Andrew Baker.

The report from AIMA and KPMG found that hedge fund management firms had almost universally increased investment in regulatory compliance since 2008, with 98% of firms hiring additional staff in this area.

Seventy-six per cent of respondents have observed an increase in investment by pension funds since 2008, while institutional investors as a whole, including funds of funds, accounted for a clear majority (57%) of assets under management.

Robert Mirsky, lead partner for hedge funds at KPMG in the UK, commented: “The combination of an increase in regulation, the changing nature of the investor base, and the natural evolution of the business has made the industry nearly unrecognisable from only five years ago.”

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