NU Online News Service, June 24, 11:30 a.m. – Hedge fund managers and manufacturers are beginning to realize that their market can include “merely wealthy” people, not just the institutional investors and highly affluent individuals who are their prime market, reports Financial Research Corp., Boston.

Investors with $1 million to $5 million in investable asset and institutions have long used hedge funds and similar vehicles to cut down on riskier investments in their portfolios, FRC notes in its new study, Entering the World of Hedge Funds: Opportunities and Obstacles for Targeting The Affluent.

Hedge funds have been only “cocktail party cachet” among the less affluent, but now, with registered hedge funds and more reasonable investment minimums, “the opportunity is ripe to translate the cocktail chatter into actual sales,” FRC says.

It expects global hedge fund assets under management to top $1 trillion by 2004, in part due to the new target market of merely affluent investors.

Among the most significant findings of the FRC study:

  • Funds-of-hedge-funds are becoming the product of choice for advisors catering to high-net-worth investors, and the offering is well suited for less affluent clients as well. With around $55 billion in current total assets, funds-of-hedge-funds are catching wide interest as alternative investment vehicles.
  • New entrants sometimes rush their hedge funds to market too fast, without laying the proper foundation for their offer. That can force them to retrench, running up costs. Instead, the new entrant needs to evaluate the differences between the different legal structures available and the best way to distribute the offering.
  • Proceed with caution. Manufacturers can underestimate the resources, infrastructure, technology, administrative support and planning needed for a successful hedge fund launch.