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Investment management: More consolidation could encourage convergence

The sixth annual report on global investment management by KPMG has revealed that further convergence between hedge funds, private equity companies and long-only managers is to be expected.

The report, released in November, was compiled from a survey of three sets of key players: long-only and alternative investment managers; pension funds; and administrators of long-only and alternative investments. Their responses have revealed three key trends.

The first is the convergence between long-only and alternative investments, as more participants in each are adopting the techniques of the other. Secondly, that between alternative investments themselves, with private equity managers and hedge funds becoming more closely aligned. Lastly, the convergence within asset classes, such as when a fund expands its portfolio into new regional markets. "Up to now, convergence has been tactical," says Jon Mills, a partner at KPMG. "Now it’s more about strategic measures."

Convergence, according to the report, is mainly being driven by the increased demand of clients for absolute returns, causing investment managers to look for new areas to find them. As hedge funds and private equity firms seek these returns with aggressive, more diversified investments, long-only managers have been forced to find ways to replicate those returns. Another driver for convergence by long-only managers is the need to retain talent. More and more hedge fund managers have come from long-only investors, and the balance is not being redressed.

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