A discussion about the issue of sustainable future growth at GAIM Ops Cayman began with a bullish prediction that industry AUM would be $4.5 trillion by the end of 2020. A panel of managers and advisors debated where the next $2 trillion of assets is going to come from, and whether the co-mingled fund is going to be an endangered species.
The focus then switched to what structures are most appropriate for sustainable growth, and if there is still life in the 2/20 fee structure.
“The industry has seen pressure on returns, fees and liquidity but I think if you have returns and a good story then you can still get 2/20,” said one panellist, noting that probably less than 10 percent of funds are in that position.
One investor said his firm exclusively invests in co-mingled funds so it is certainly not a dying model.
“On fees, we want to pay high quality managers their fees,” he said, adding that performance fees were more appropriate than fat management fees.
“It depends on whether you are driving a Ferrari or a Ford,” another investor said.
“Business models are evolving and the balance of power has shifted more to investors,” said Scott Lennon, principal at 19 Degrees North Fund Services, a Cayman-based corporate governance firm. “Managers will need to adapt to this through their fee structures in order to garner assets,” he said.
Although the co-mingled vehicle has been under pressure for the past five years it is still seen as suitable for a large part of the investor base. The comment was also made that funds of one are sometimes done at the expense of assets that would otherwise be in the co-mingled fund.
An allocator said that from his perspective, they want managers who trade one strategy effectively and the co-mingled fund is the optimal way to access that due to cost efficiency. When looking at emerging managers, the focus is more on the ability to customise and he added that here there is a place for managed accounts—which have increased, according to industry surveys.
GAIM Ops Cayman, Cayman Islands