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I
Institutional Investment in Hedge Funds: Evolving Investor Portfolio Construction Drives Product Convergence
Total Assets for New Product Offerings in the
Convergence Zone Could Top $2 Trillion
When the analysis of all these asset pools across the products
in the long-only and regulated fund space is added together, our
forecast shows that hedge fund managers could be looking at
an opportunity of more than $2 trillion. This total is comprised
of the $450 billion opportunity we see for directional hedge
fund managers to extend their offerings into private long-only
funds with existing and prospective institutional clients, the
$350 billion opportunity in regulated alternative funds put
forward by SEI and $1.24 trillion in retail pension and retirement
fund assets that could be redirected from traditional long only
managers to hedge fund managers with regulated long-only
fund offerings.
This is a tremendous figure, almost as large as the entire hedge
fund industry as it exists today. The draw of these assets is likely
to remain a driving factor encouraging hedge funds to continue
to innovate their products and expand toward a realm previously
owned exclusively by traditional asset management firms.
The largest hedge fund managers that will achieve success with
their core offerings and been able to build robust organizations
and infrastructures will be those best positioned to access these
opportunities. For most, moving into this space and expanding
their set of product offerings will be seen as a maturation step.
The challenge these managers face is determining how to
extend their capabilities without being seen as losing their focus
or creating second-rate product that offers a lesser standard
of management. Having a clearly articulated strategy on why
they are making the moves they choose tomake will be a critical
success factor for these managers. Knowing how to position
both their core product and new offerings to their investor
and intermediary audience will also be a key requirement.
This is the final paradigm we examine in Section VII of this
year’s survey.
“ We think that our long-only clients seemed to like the fact
that we had started off as a ‘hedge fund’ firm. We sense
that investors felt that our team will be more nimble in their
investment/risk management approach,”
– $1-$5 Billion AUM Hedge Fund
“ We see some growth in hedge funds creating long-only
funds. In Europe, this is more likely due to a fear of
regulation. Managers create long-only products to survive,”
– European Fund of Fund