Hedge funds have launched long-only products in direct competition with traditional asset managers, a study shows.
Deutsche Bank has found that hedge funds have evolved to run non-traditional products such as long-only and liquid alternative strategies to meet new demand from institutional investors.
Half of the fund managers that responded to a Deutsche Bank survey now run non-traditional hedge fund products, and 48% of them have seen more than half of new business since 2008 directed towards non-traditional hedge fund products.
Meanwhile, over half of investor respondents say they allocate to non-traditional hedge fund products, including 36% who invest in hedge fund-run long-only, and one third investing in liquid alternatives operated by hedge fund managers.
One third of all investors increased their allocations to non-traditional hedge fund products last year, and another 43% on average plan to increase their allocations over the next 12 months.
Deutsche Bank says a trend behind the move is that institutional investors are moving away from traditional asset allocation in favour of a risk-based approach, incorporating hedge funds into their core portfolio rather than as a separate alternatives allocation. This removes constraints on allocations to alternatives, and investors are now choosing to work with trusted hedge funds on new products such as liquid alternatives and long-only strategies.
Hedge fund managers say they are crossing over into non-traditional products because clients are asking them to. Sixty-seven per cent of responding managers say that demand from existing clients is one of the top three reasons for diversifying the product line.
The study – called From alternative to mainstream – received responses from 200 investor entities worldwide managing more than $625 billion (€460 billion) in hedge fund assets and 60 global hedge fund managers representing $528 billion in firm-wide assets.
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