Shifting strategies Winning investor assets in a competitive landscape Our 2014 survey compares the views and opinions from hedge fund managers and investors globally. EY’s 8th Annual Global Hedge Fund And Investor Survey Growth Managers are launching new products to access investors Institutional investor allocation to traditional hedge funds slows Hedge funds’ top growth strategies 20% 2012 13% 67% 13% 32% Launching new product types 19% Increasing penetration with existing client types 19% 10% Accessing new investor bases within existing markets Managers are offering separately managed accounts, long-only funds and registered products ecrease D allocation 74% No change Caution! New products can have a negative impact on margins Proportion of managers with changes in margin 35% 52% 2014 I ncrease allocation Expanding distribution into new geographic markets 13% Long-only funds Long-only funds Registered liquid alternatives (including UCITS) Separately managed accounts 50% 49% 57% Separately managed accounts Sub-advisory capabilities 37% 21% Registered liquid alternatives (including UCITS) 21% Impact: 24% 30% Positive 43% Negative Expenses Regulatory reporting expenses are having a significant drag on margins and creating barriers to entry Average drag on margins = Investors are more sanguine about expense ratios 6.0% Investor satisfaction with expense ratio of funds 6.3% 6.1% North America 5.3% Europe 24% Asia 49% 27% Very satisfied Neutral Not satisfied Middle-office outsourcing represents the new frontier for additional cost savings Reduced replication of outsourced functions can improve efficiencies Managers see lack of maturity in certain third-party service provider offerings ully F developed Collateral management Outsourced functions that hedge funds fully shadow or perform some oversight 27% 64% ot N developed or don’t know Investor reporting GAV/NAV performance calculation 19% Regulatory reporting 18% 52% Daily reconciliations 52% Cash management Outsourced functions investors prefer hedge funds fully shadow or perform some oversight 40% GAV/NAV performance calculation Fully shadow 28% Daily reconciliations 30% Cash management Perform some oversight Cybersecurity 85% of managers cite security concerns for not using the cloud 80% of managers expect to increase their spend on cybersecurity, but few have made investments thus far To download the survey, go to: ey.com/HedgeFundSurvey © 2014 EYGM Limited. All Rights Reserved. | EYG no. CK0849 | 1407-1284479 NY