Governing investment funds: The latest trends

Abstract

In the current market environment, alternative investment funds are trying to find new ways to attract capital and deliver higher returns to investors and there is now a general trend toward customisation of investment fund products. The fact that investors now seek both strong performance and positive societal outcomes is no longer a novelty and institutional investors have begun incorporating environmental, social and governance (ESG) principles into their investment policies. We are seeing strong institutional investor interest in a firm’s culture and employment practices. Questions around equal opportunity and diversity cannot be ignored whether or not they fall strictly within a manager’s ESG principles or other internal policies. In addition to challenging managers on governance and responsible investing, investors are highly focused on fees charged by managers to fund structures. As a general proposition, despite the fee pressure in recent years, investors are not averse to paying fees, but fees need to be justified. Over the past several years there has also been increased focus from investors and regulators on the nature and amount of expenses charged by managers to funds. The fundamental principle can perhaps best be described by saying that fees and expenses must be properly payable by a fund in accordance with its constitutional documents and adequately disclosed to investors. Going forward, it seems likely that alternative investment funds will continue to customise around investors’ needs, with larger managers being better placed to attract capital.