GLOBAL - Hedge funds managers are divided on what effect greater regulation will have on their products, a survey showed.
Out of 57 respondents to a survey by RBC Dexia, more than half thought a more regulated market environment would have no impact on asset allocation or had no opinion (12%).
A third said they felt that greater regulation could lead to increased allocation in alternatives, while 18% said it would be negative for the market.
RBC suggested in its report on the survey that the results could indicate some acceptance of the inevitability of the introduction of more regulation following fund failures and heavy losses in the financial crisis, which were exacerbated by the damage wrought by high profile investment frauds, such as the Bernard Madoff scandal.
The survey also showed that alternative investment managers are responding to the growing mood for transparency and risk management with 61% agreeing that greater governance of the sector could result in increased inflows.
While the larger players said they would deal with the requirement for greater governance by hiring more staff, many of the smaller players indicated that they would investigate third-party outsource solutions to satisfy this market need.
"In spirit, at least, the traditional hedge fund industry preference for opaque investment strategies, together with light touch oversight and controls, appears to be giving way to a more pragmatic, open approach, designed to allay investor concerns and restore business confidence," RBC said.
This is evident also in the increased appetite to launch funds in regulated domiciles in addition to their traditional offshore offerings.
Almost half of the respondents (49%) said they were planning to launch new onshore funds with 40% planning to launch new funds offshore.
RBC added: "Specialist European jurisdictions such as Luxembourg and Ireland offer the potential to support regulated hedge fund products and many within these centres hope that significant business can be attracted away from traditionally popular Caribbean jurisdictions."
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