Therefore this list of requirements from institutions should be viewed as "best practices" by a fund manager. The customer is always right, and the largest customers, are even more right. Here is an example of the typical requirements institutions now ask for - in this case when addressing transparency:
- Management fees should be designed to cover operating costs.
- Performance fees should be structured in a manner consistent with the underlying strategy, investment horizon and liquidity including, where appropriate, the crystallisation of some portion of the fee over several periods.
- Business model should be designed to retain majority of investment and management talent when the fund is below the high-water mark for more than a year.
- Control of assets so that the investor has the ability to receive most, if not all, of its capital within a year or less with minimal, if any, constraints.
- Transparency that is sufficient for the client to understand the hedge fund exposures and the risks taken in the portfolio, as well as performance drivers.
- Transparency so that the investor receives security level information that can be used in a risk analytics tool.
A Guide to Institutional Investors’ Views and Preferences Regarding Hedge Fund Operational Infrastructures