What are todays investors demanding of their hedge funds? Aside from exceptional financial returns, there is an increasing tendency to hold fund management accountable for expenses, sound compliance policies, and overall adequate disclosures. If investors detects a problem in any of these areas, they stand ready to walk away from the deal. In response to such savvy investors, hedge-fund managers are making serious efforts to improve fund transparency.
Fund Freedom of Expression
Last years changes in the way hedge funds may be offered and solda result of the federal Jumpstart Our Business Startups (JOBS) Acthas unleashed a flood of advertising and other promotions to the general public that were previously subject to the 80-year-old ban on general solicitation. Private issuers may now publicly ply their investment opportunitiesincluding boasts of past performancethroughout all media venues, but along with such freedom of expression comes greater disclosure obligations to the consumer.
Red Flag Awareness
Issuers may only sell securities to accredited investors, i.e. people whose net worth is in excess of $1 million and/or who have an annual income in excess of $200,000. Hedge funds are designed for sophisticated investors, yet not all investors have in fact displayed such sophistication when it comes to conducting due diligenceuntil now. An Operational Due Diligence Survey of global hedge fund investors conducted by Deutsche Bank found that the five most common red flags for investors were a lack of willingness on the part of fund promoters to provide transparency, inadequate compliance controls, poor segregation of duties, inexperience in critical roles, and inappropriate valuation policies.
Priority of Concerns
Of the 70 global investor entities polled (both institutional and individual), 64% said that investigation of miscellaneous expenses was important to them, 38% cited valuation policies as being of major concern, and 73% placed the focus on compliance and regulatory framework and in particular mitigation of risk in a cross-border regulatory environment. Satisfaction with the level of experienceor lack thereofof the funds manager is another factor that can prompt an investor veto. Interestingly, failure to provide adequate transparency trumped all other concerns.
Hedge Funds Respond
Scott Carter, an executive with Deutsche Banks Markets Prime Finance, America in New York noted,
Investors increasingly access hedge funds as part of a broader set of portfolio solutions which deliver superior risk adjusted returns. With this comes an expectation for robust operational controls, and we are seeing hedge funds successfully respond to these demands.
Hedge funds increasingly view transparency and compliance as not merely regulatory obligations but rather a key marketplace differentiator for the diligent investor.

Peyman Khosravani is a global blockchain and digital transformation expert with a passion for marketing, futuristic ideas, analytics insights, startup businesses, and effective communications. He has extensive experience in blockchain and DeFi projects and is committed to using technology to bring justice and fairness to society and promote freedom. Peyman has worked with international organizations to improve digital transformation strategies and data-gathering strategies that help identify customer touchpoints and sources of data that tell the story of what is happening. With his expertise in blockchain, digital transformation, marketing, analytics insights, startup businesses, and effective communications, Peyman is dedicated to helping businesses succeed in the digital age. He believes that technology can be used as a tool for positive change in the world.