Though hedge fund volume has doubled in the past five years, fees are pressured down; responsive strategies to replace fee dependency include expansion — M&A, joint ventures and alliances.

1. © 2017 Grant Thornton LLP. All rights reserved. 1
Asset management industry
success:
Build, transform and protect
value into 2020
The Future of Growth and the Asset Management Industry

2. © 2017 Grant Thornton LLP. All rights reserved. 2
With downward pressure on hedge fund
fees, it's time for expansion
Hedge fund volume is up — doubled in the past 5 years.
But fees are down and showing every sign of staying there.
Why? And what to do?
Causes are many, as are responsive strategies — the strongest
might be expansion.

3. © 2017 Grant Thornton LLP. All rights reserved. 3
Fee aggregates dropped between 2015 and 20171
Management Performance
2015 2% 20%
2017 1% 18%
Management fees dropped 2016–2017, according to 57% of investors.2
1 Hedge Fund Journal report
2 Credit Suisse survey
Fees have fallen

4. © 2017 Grant Thornton LLP. All rights reserved. 4
Top fee pressures
Lower returns
Stiffer competition
Trade-off of lower liquidity
GET MORE INFO
With downward pressure on hedge
fund fees, time is right for expansion

5. © 2017 Grant Thornton LLP. All rights reserved. 5
Top fee pressures
Lower returns
Stiffer competition
Trade-off of lower liquidity
4% annually 2012–2017, compared to 14% for S&P 500 Index
29% of AUM in passive investments in early 2017
31% hard lock-up required, compared with 16% in 2015
according to Seward & Kissel 2016 New Hedge Fund Study

6. © 2017 Grant Thornton LLP. All rights reserved. 6
Reshape your business
Find a thriving future via routes other than traditional fees:
• Explore new fees and structures
• Revise operations
• Refocus on compliance
• Consider expansion
READ THE REPORT
Reignite Growth in Asset Management

7. © 2017 Grant Thornton LLP. All rights reserved. 7
Explore new fees and structures
• Link fees to performance metrics
Investors expect fees to be reduced when performance drops
• Offer discounted fees for more permanent capital
Challenge the 90-day liquidity norm
• Diversify offerings
Expand, and explore hybrid models (traditional + alternative investment)
Create for near wealthy investors, e.g., 1-and-10 fee for < $100,000 net worth

8. © 2017 Grant Thornton LLP. All rights reserved. 8
Revise operations
• Scrutinize back office processes, tighten internal controls
For time/cost savings, and efficiency/response to SEC and DoL inquiries
• Embrace technology
For new distribution avenues
Determine how automation, robo-advising, blockchain and AI could fit

9. © 2017 Grant Thornton LLP. All rights reserved. 9
Refocus on compliance
• Build in cybersecurity
Business strategy, risk management policies and diligence processes
• Ensure compliance of outsourced tech providers
Verify use of SSAE 18 rather than previous standard
Require SOC 1 & 2 reports

10. © 2017 Grant Thornton LLP. All rights reserved. 10
Consider expansion
• Recognize the hedge fund industry's global nature
Including investors and investments
• Define business size
In the marketplace and among the competition
• Grow by acquiring or being acquired
To realize accrued value

11. © 2017 Grant Thornton LLP. All rights reserved. 11
In considering expansion…
Larger funds are achieving scale through acquisitions,
much of them global.
The average gain of the top 10% of managers went from
20.3% to 32.7% during 2016.3
Midsized funds could grow by acquiring
another fund or selling to a larger fund
for higher valuations.
3 Hedge Fund Journal report
GET THE REPORT
Reignite Growth in Asset Management

12. © 2017 Grant Thornton LLP. All rights reserved. 12
Expansion of business/investor base?
Alliances and joint ventures could prove valuable.
Example: Asset classes offered by a real estate, pure-play
hedge fund and private equity group under a management
umbrella could be approved by pensions and large
institutions' endowments as an advisor at a high level.
Alternatives: Open up the liquid book to segue into a mutual
fund; outsource office, risk management and other services;
or step up use of exchange-traded funds.

13. © 2017 Grant Thornton LLP. All rights reserved. 13
Revamp strategies and structures.
Reshape to offer products that appeal
to a growing investor base.
Cease fee dependency ─ broaden the organization

14. © 2017 Grant Thornton LLP. All rights reserved. 14
Learn more
about the future of growth in the banking industry
Reignite Growth in
Asset Management
The Future of Growth and the
Asset Management Industry
Watch the webcastRead the report
With downward pressure on hedge fund fees,
time is right for expansion
Read the article

15. © 2017 Grant Thornton LLP. All rights reserved. 15
Michael Patanella
Leader, National Asset Management Sector
Partner, Audit Services
T +1 920 968 6710
E michael.patanella@us.gt.com
David Sites
Partner, International Tax Services
Washington National Tax Office
T +1 202 861 4104
E david.sites@us.gt.com
Like further information?
Contact our professionals

16. © 2017 Grant Thornton LLP. All rights reserved. 16
Tell us what you think about this content.
Take a quick survey.
We'd like your opinion