How has the way investors view emerging markets hedge funds changed since the financial crisis?

The asset management world may not have entirely woken up to this, but the world has changed in the wake of the global financial crisis. Institutions are very aware of the challenges of low growth, perennial fiscal deficits and lacklustre capital markets in the West that for?many of us will last the rest of our financial careers.

The commodity super-cycle and the growing ascendancy of the developing world (now accounting for almost half of global GDP) means investor interest in allocating to these equity markets has correspondingly moved up a gear or two.

Goldman Sachs estimates pension funds and other institutional investors based in developed markets could raise their emerging markets equity weighting from 4%-5% since the financial crisisto 10% by 2020 and 18% by 2030, driven by an expectation that emerging markets could eventually have the largest share of the global equity market.

Despite the increased demand for exposures to the developing world, institutional investors have been largely absent from investing with locally-based investment managers in these regions, focusing instead on the larger fund groups? global emerging markets offerings.

The pent-up demand for local knowledge is curtailed by the perceived risk of investing locally. This has been significantly magnified since the 2008 financial crisis by the additional requirements imposedby investors on money managers, particularly in regions that are more distant, volatile and less familiar. Investors recognise the appeal of emerging markets versus developed markets but are calling for greater control of their investments, enhanced transparency, appropriate?liquidity terms and cost-effective structures which reward managers for genuine skill or alpha.

Industry experts point out that managed accounts have become the fastest growing segment of?the fund management industry which will no doubt go a long?way towards addressing the structural impediments to investing with locally-based emerging market managers.

Simon Hopkins, Milltrust International Group

http://www.fundcatalyst.com/news/Emerging-allocations.pdf