Compiling the key challenges and priorities of alternative investment managers for the current year, Deloitte Luxembourg recently published its 2014 Alternative Investment Outlook. The report, which is based on research as well as the first-hand experience of Deloitte’s leading investment management practitioners, delves into three key areas private equity funds, hedge funds, and alternative investment managers should focus on in 2014: differentiation, data and risk.

Differentiate through niche expertise
The report notes that alternative investment managers have raised record sums over the past year, with hedge fund assets under management reaching a record €1.9 trillion and private equity firms raising €215 billion, the highest level since 2008. In addition, institutional investors have stepped up their participation in hedge and private equity funds. However, these positive developments are primarily benefitting the largest and most well established funds. Smaller funds that develop expertise in niche markets can position themselves to capitalise on the desire institutional investors have to diversify a portion of their holdings.

Leverage the full potential of data
As regulatory requirements continue to become more complex worldwide, and investors increasingly demand greater transparency in risk and performance, the ability to leverage data quickly and accurately is a major competitive advantage. Indeed, investor demand for greater transparency was ranked among the top three drivers of change in the industry by more than half of respondents in a State Street survey of alternative fund managers. Noting that leading private equity firms are already utilising sophisticated data systems to track performance, the report also suggests that fund managers who take the additional step of utilising such systems to customise solutions will position themselves to satisfy unique client requirements.
Employ holistic risk management

Risk management has become a greater concern across the industry as both hedge funds and private equity firms have increasingly adopted outsourcing to address the cost and complexity of their business activities. In fact, in a global risk management survey conducted by Deloitte last summer, 94 percent of industry respondents said their executive management teams are spending more time on oversight of risk than they did five years ago. The engagement of third parties opens the door to a wide range of additional risks and potential reputational harm, therefore more firms are utilising risk-based resourcing models identify optimal resources and manage those risks.

Alexandre Prost-Gargoz, Partner in tax at Deloitte Luxembourg explains,“The devil is in the detail. While fundraising is significantly improving, investor requirements are increasingly demanding regarding terms and conditions, risk management and transparency. This trend benefits primarily the largest funds with the internal resources to cope with the pace. For smaller GPs, meticulous preparation and careful consultation is required before hitting the road and marketing their fund.”

The entire 2014 Alternative Investment Outlook is available for download on the Deloitte Luxembourg website at http://www.deloitte.com/lu/whitepaper/2014-alternative-investment.

Furthermore, on 25 March 2014, Deloitte Luxembourg will host its first Private Equity Symposium, offering an in-depth review of current market trends and regulatory issues impacting the private equity industry. For additional information, please visit http://www.deloitte.com/lu/events/private-equity-symposium.