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Portfolio > Alternative Investments

Assets Flood Into Hedge Fund Liquid Alternatives: Study

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Hedge funds are elbowing into the mainstream marketplace at an accelerated pace, bringing new products to market and driving asset growth.

A Deutsche Bank study released Monday showed that the percentage of participating investors allocating to liquid alternatives had jumped from 28% to 51% year on year.

Some three-quarters of alternative undertakings for collective investment in transferable securities directives (UCITS) investors and nearly two-thirds of investors into alternative ‘40 Act mutual funds planned to increase their allocations.

The study surveyed 212 investor entities worldwide, managing more than $804 billion in hedge fund assets, and 86 global hedge fund managers representing $6 trillion in firm-wide assets.

According to Deutsche Bank, alternative mutual funds have grown by 38% annually since 2008, compared with 13% for the hedge fund industry and 9% for the U.S. mutual fund industry.

Alternative UCITS assets have grown by more than 40% annually during this period, while the wider European UCITS industry by only 2%.

“The growth of liquid alternatives is a very real opportunity for investors who have previously been unable to access hedge fund strategies to do so in a liquid and regulated structure,” Daniel Caplan, European head of global prime finance at Deutsche Bank, said in a statement.

Key Findings

Liquid alternative investments have experienced a compound annual growth rate of around 40% since the 2008 financial crisis, making them the fastest growing segment of the asset management industry.

The study predicted that net inflows into liquid alternatives from survey participants would grow by 44% over the next 12 months — that is, new inflows of $49 billion, compared with $34 billion over the last 12 months.

Hedge fund managers are quick to diversify their product offering in response to investor demand, with 42% of responding managers currently offering liquid alternative products, up from 27% last year, and a further 34% saying they would consider including such products.

Twenty-nine percent of respondents planned to launch at least one alternative ’40 Act mutual fund, and 25% of managers have similar plans for alternative UCITS products.

Large, well-established managers have moved most aggressively toward liquid alternatives, with more than two-thirds of those with $5 billion or more in assets under management managing such products for more than three years.

A third of these mega-asset managers planned to launch at least one new liquid alternative product in the next 12 months.

Investors allocating to alternative ’40 Act mutual funds will favor fundamental equity long/short, fundamental equity market neutral and event-driven strategies over the next 12 months, while for allocators to alternative UCITS, the most sought-after strategies will be fundamental equity long/short, event-driven and global macro.

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