1 1

ALTERNATIVES

ALTERNATIVES

State Street 2013 Alternative Fund Manager Survey Executive Summary: Hedge Funds

September 2013

2 2

ALTERNATIVES

State Street 2013 Alternative Fund Manager Study

• In July 2013, State Street conducted a survey of 391 leading alternative asset managers in

collaboration with Preqin, a leading source of data and intelligence for the alternative fund industry. Of

these, 186 were from the hedge fund sector.

• Managers provided their insights on current challenges, priorities and opportunities across the

industry, as well as their predictions for the future.

About the Research

63%

27%

8%

2%

Hedge Fund Respondents by Region

North America

Europe

Asia Pacific

Other

3 3

ALTERNATIVES

Drivers of Change

Hedge fund managers view the change taking place in their industry as being primarily investor-driven.

Source: State Street 2013 Alternative Fund Manager Survey

54%

41%

38%

34%

26%

0% 10% 20% 30% 40% 50% 60%

Investor demand for greater transparency around risk andperformance

Increased regulatory scrutiny of alternative funds

Investor demand for more favorable fees

Investor demand for greater liquidity at fund level

Increased manager competition for limited pool of assets

Top Five Drivers of Change in the Hedge Fund Sector

Note: Respondents could select up to three answers. Only the top five responses are shown.

4 4

ALTERNATIVES

Evolving Strategies Create Competitive Edge

Hedge fund managers are addressing investor needs with new product and fee structures.

35%

27%

22%

12%

10%

22%

30%

7%

14%

15%

Offer managed accounts

Add new investment strategies with in-house resources

Change fee structure

Offer UCITS funds

Expand into new regions

Product and Investment Changes Made by Hedge Fund Managers Since 2008 or Planned by 2018

Introduced this change since 2008 Plan to introduce this change over next five years

Source: State Street 2013 Alternative Fund Manager Survey

5 5

ALTERNATIVES

Operational Excellence With a Spotlight on Risk

While many are now providing more information to their investors, most hedge funds do not report having

made fundamental changes to their risk and operational strategies post-crisis.

39%

26%

23%

18%

17%

12%

5%

9%

10%

16%

Report more information to investors on holdings, risk andperformance

Use an independent administrator

Report more frequently to investors on investment holdings

Use new techniques to assess performance & risk relative to peers

Purchase or license software to upgrade investment ops technology

Risk and Operational Changes Made by Hedge Fund Managers Since 2008 or Planned by 2018

Introduced this change since 2008 Plan to introduce this change over next five years

Source: State Street 2013 Alternative Fund Manager Survey

6 6

ALTERNATIVES

Challenges for the Future

Fundraising tops the list of challenges hedge fund managers expect to face going forward.

Source: State Street 2013 Alternative Fund Manager Survey

80%

53%

41%

16%

16%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Fundraising

Generating performance

Adapting to regulation

Preserving margins

Finding skilled staff

Top Five Challenges Predicted by Hedge Fund Managers Over Next Five Years

CORP-0853