Hedge funds are expanding into the broader asset management industry, running nontraditional products such as long-only and liquid alternative strategies in order to meet new demand from institutional investors, according to a study released last week.
Deutsche Bank surveyed 200 investor entities worldwide that manage some $625 billion in hedge fund assets and 60 global hedge fund managers representing $528 billion in firmwide assets.
The study found that more than half of investor respondents allocated to nontraditional hedge fund products. These included 36% who invested in hedge fund-run long only, and 33% who invested in liquid alternatives operated by hedge fund managers.
One third of all investors increased their allocations to nontraditional hedge fund products last year, and another 43% on average planned to increase their allocations over the next 12 months.
According to the study, 50% of manager respondents ran nontraditional hedge fund products, and 48% of those managers had seen more than half of new business since 2008 directed toward nontraditional hedge fund products.
Large, well-established firms were most likely to have diversified their product range, the study found. Eighty-one percent of managers with more than $5 billion in hedge fund assets under management had launched at least one nontraditional hedge fund product.
Twenty percent of all responding managers planned to launch at least one non-traditional hedge fund product over the next 12 months, and another 42% were considering doing so.
Hedge fund managers reported that they were crossing into non-traditional product territory because clients were asking them to do so. Sixty-seven percent of responding managers listed demand from existing clients as one of the top three reasons for expanding their product line—along with the desire to diversify the business model and to expand the client base.
Reuters, in a related story, noted that the hedge fund industry saw risk-averse investors, who tend to put most of their money in stocks and bonds, as their best source of future growth, prompting them to curtail their earlier freewheeling behavior.
Deutsche Bank said evolving investor demand continued to drive growth for liquid alternatives and long-only vehicles run by hedge funds. Fifty-five percent of long-only assets managed by hedge fund manager respondents came from institutional investors, whereas retail capital accounted for 54% of assets in alternative ’40 Act mutual funds run by responding managers.
“This study highlights the expanding relationship between institutional investors and the hedge fund managers that have built trusted partnerships and a reputation for delivering strong risk adjusted returns,” Daniel Caplan, Deutsche Bank’s European head of global prime finance, said in a statement.
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