Hedge Funds Expand Asset Management Presence - Deutsche Bank Study

Sandra Kilhof

4 December 2013

Hedge funds are playing an increasingly expanding role in the asset management industry, according to a new survey by tag|Deutsche Bank|]Deutsche Bank.

The report revealed how hedge funds have evolved to run non-traditional products such as long-only and liquid alternative strategies to meet new demand from institutional investors, who are moving away from traditional asset allocation. As such, investors in favour of a risk-based approach are incorporating hedge funds into their core portfolio rather than as a separate alternatives allocation, it said.

The study surveyed more than 260 investors and managers, and found that over half of investors allocate to non-traditional hedge fund products, including 36 per cent 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 per cent on average plan to increase their allocations over the next 12 months.

Similarly, half of manager respondents now run non-traditional hedge fund products, and 48 per cent of those managers have seen more than half of new business since 2008 directed towards non-traditional hedge fund products, instead of traditional asset management products.

“An ever increasing number of hedge fund managers are diversifying their product range as they seek to provide differentiated solutions to institutional investors,” said Anita Nemes, global head of capital introduction at Deutsche Bank.

The trend towards product diversification is most pronounced among the large, well-established firms, the report added, noting that 81 per cent of managers with more than $5 billion in hedge fund assets under management have launched at least one non-traditional hedge fund product, with one fifth planning to launch within the coming year.

Client demands are the key driver to the cross over into non-traditional products, the report revealed, with 67 per cent of managers saying that demand from existing clients is one of the top three reasons for diversifying the product line. This has especially driven growth for liquid alternatives and long only vehicles run by hedge funds.

The study received responses from 200 investor entities worldwide managing more than $625 billion in hedge fund assets and 60 global hedge fund managers representing $528 billion in firm wide assets.