Long/Short Credit Garner Growing Interest by Funds: Cerulli

“Even though long/short credit funds only represent 2%, or $4.5 billion, of alternative mutual fund assets, the category experienced robust growth in 2012, boosting assets by 46%,” according to the July Issue of The Cerulli Edge. “It was the third-fastest growing among the alternative categories, behind MLP funds and inverse/bear market funds, which expanded by 115% and 67%, respectively.”

In addition to mutual fund interest, Cerulli analysts see an increase in demand for long/short credit hedge fund products. According to Cerulli’s 2013 alternative investments research, close to one-quarter (22%) of institutional asset managers have received several requests for these strategies over the past 12 months and another one-third (33%) received one or two requests.

Cerulli concluded by noting managers are feeling the need to develop products that are mindful of this likely trend.

“Some of these products target a duration of zero to reduce interest rate risk and offer diversification from a long-only credit allocation,” it said. “When rates eventually rise, longer duration funds will be more sensitive since the underlying bonds will lose more value than a fund with shorter duration.”