The alternatives industry has changed drastically since the turn of the 21st century, and there's no sign of it slowing down. The role of institutional investors -- and the sophistication of these investors -- in the hedge, private equity and real estate sectors is transforming the industry. Learn More >> http://www.statestreet.com/ourbusiness/

1. 11
ALTERNATIVES
ALTERNATIVES
State Street 2013 Alternative Fund Manager Survey
Executive Summary
September 2013

2. 22
ALTERNATIVES
State Street 2013 Alternative Fund Manager Study
• In July 2013, State Street conducted a survey of 391 leading alternative asset managers in
collaboration with Preqin, a leading source of data and intelligence for the alternative fund industry.
• Managers provided their insights on current challenges, priorities and opportunities across the
industry, as well as their predictions for the future.
• Additional analysis is sourced from Preqin’s database, covering more than 30,000 funds managed by
15,000 alternative asset managers, as well as 11,000 institutional asset owners such as pension
funds, insurance companies, endowments and foundations.
About the Research
55%29%
10%
6%
Respondents by Location
North America
Europe
Asia Pacific
Other
48%
25%
15%
12%
Respondents by Type
Hedge Funds
Private Equity
Real Estate
Diversified

3. 33
ALTERNATIVES
Drivers of Change
• Investor demands are at the forefront of
managers’ minds. More than half (52 percent) of
managers rated investor demands for greater
transparency around risk and performance as a
top driver of industry change.
• Investor demands around fees and greater
liquidity also factor highly as key causes of
change.
• Advantage rests with the managers who are
attuned to the needs of this increasingly
sophisticated investor base and can tap into it
with innovative, targeted products.
As the alternative fund management industry continues to grow in both size and complexity,
institutional investors are becoming more sophisticated and demanding.
Source: State Street 2013 Alternative Fund Manager Survey
Top Five Drivers of Change
in the Alternative Funds Industry
52%
36%
35%
33%
31%
0% 10% 20% 30% 40% 50% 60%
Investor demand for greater
transparency in risk and
performance
Increased regulatory scrutiny of
alternative funds
Investor demand for more
favorable fees
Investor demand for greater
liquidity at fund level
Increased manager competition
for limited pool of assets
Note: Respondents could select up to three answers. Only the top five responses are
shown.

4. 44
ALTERNATIVES
Evolving Strategies Create Competitive Edge
• The rise of separately managed accounts is
evidence of managers’ efforts to respond to
investor demands for transparency and liquidity.
More than one in four have introduced managed
accounts since 2008, and another 18 percent plan
to do so over the next five years.
• Managers continue to address gaps in their
investor offerings by adding investment strategies
and expanding into new regions.
• In the face of fierce competition for investor
capital, many managers are finding that flexibility
in fees can mean the difference between hitting or
missing their fundraising targets.
Managers are evolving with investors, refining their product and investment strategies
and adapting to a new standard of success.
26%
25%
22%
15%
14%
8%
8%
7%
18%
29%
12%
15%
18%
8%
5%
10%
Offer managed accounts
Add new investment strategies with
in-house resources
Change our fee structure
Enter joint ventures with investors
Expand into new regions
Offer UCITS funds
Offer funds with shorter lifespans
Add new investment strategies by
acquiring another business
Product and Investment Changes
Made Since 2008 or Planned by 2018
Introduced this change since 2008
Plan to introduce this change over next five years
Source: State Street 2013 Alternative Fund Manager Survey

5. 55
ALTERNATIVES
Operational Excellence With a Spotlight on Risk
• When asked what risk and operational changes
they had made since 2008, the largest
proportion of all groups of alternative asset
managers stated that they are reporting more
information on investment holdings, risk and
performance to investors — and more
frequently.
• Surprisingly few managers report having
purchased or licensed new software to upgrade
their investment operations technology (17
percent) or using new techniques to assess their
performance and risk, post-crisis (15 percent).
Some acknowledge gaps in their existing
capabilities, including weaknesses in reporting
software and a lack of integration between their
Order Management System and risk platforms.
Managers should make sure that quality keeps pace with quantity when managing
ever-escalating demands for integrated risk and performance data.
Source: State Street 2013 Alternative Fund Manager Survey
44%
32%
24%
22%
17%
15%
13%
16%
8%
4%
5%
16%
9%
6%
0% 10% 20% 30% 40% 50%
Report more information to
investors
Report more frequently to
investors
Reduce amount of leverage we
employ
Use an independent administrator
Purchase/license software to
upgrade inv. ops technology
Use new techniques to assess
performance & risk
Use an independent provider of
performance and/or risk analytics
Risk and Operational Changes
Made Since 2008 or Planned by 2018
Introduced this change since 2008
Plan to introduce this change over next five years

6. 66
ALTERNATIVES
Competing in an Uncertain Regulatory Environment
• Among fund managers, widespread frustration with
regulation persists, although others see only
opportunity – to distinguish themselves from their
peers and gain a fundraising advantage.
• Among investors, opinion is divided on how
beneficial new regulations are for the industry
– Private equity investors most strongly believe
that the regulations are not beneficial, citing
reduced fund choices and increased costs as
possible detrimental effects.
– In comparison, 35 percent of hedge fund
investors view recent regulations as beneficial
to the industry, as they provide transparency
and consistency.
• A large proportion of both managers and investors
are unsure of the impact regulations will have.
Although burdensome for managers, the new era of heightened regulation is also creating opportunities.
Source: Preqin database, accessed August 2013
43% 40%
52%
22%
41%
26%
35%
19% 22%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Hedge Fund
Investors
Private Equity
Investors
Real Estate
Investors
Institutional Investors' Assessment of
Alternative Industry Regulation
Regulations are beneficial to the industry
Regulations are not beneficial to the industry
Unsure

7. 77
ALTERNATIVES
The Next Alternative: Thriving in a New Fund Environment
• Fundraising ranks as the most urgent challenge
for alternative managers over the next five
years, with 82 percent citing this a top
challenge, followed by generating performance
at 54 percent.
• Managers are optimistic about the future. Of the
86 percent who expect their costs to increase,
three-fourths (75 percent) don’t feel their growth
will be constrained as a result.
• The alternatives industry continues to expand in
terms of both size and diversity. Fifty-eight
percent of managers expect appetite for hybrid
fund structures to increase over the next five
years, which will require managers to ensure
they have the necessary infrastructure to
support these vehicles.
Despite the increased pressure they are facing from multiple directions,
alternative fund managers are optimistic about what the future holds.
Source: State Street 2013 Alternative Fund Manager Survey
82%
54%
38%
20%
18%
0% 20% 40% 60% 80% 100%
Fundraising
Generating performance
Adapting to regulation
Preserving margins
Fulfilling investor demands
Top Five Challenges
Predicted by Alternative Managers
Over Next Five Years
CORP-0853