A Deutsche Bank study today revealed the true extent of demand for liquid alternative investments, with the percentage of participating investors allocating to such products up from 28% to 51% year-on-year. The study – From Alternatives to Mainstream (Part Two) – saw almost three quarters of alternative UCITS investors and nearly two thirds of investors into alternative ‘40 Act mutual funds planning to increase their allocations.
Liquid alternative investments are now the fastest growing part of the asset management industry. Alternative UCITS assets have grown over 40% annually since 2008, whilst the hedge fund industry has grown 13% and the wider European UCITS industry only 2%. Alternative mutual funds have grown by 38% annually during this period, compared to 9% for US mutual fund industry.
Hedge funds have moved into the mainstream marketplace at an accelerated pace, bringing new products to market and driving asset growth.
Key findings of the study, which surveyed both investors and managers, include:
Liquid alternative investments are the fastest growing part of the asset management industry, having experienced a CAGR of roughly 40% since the 2008 financial crisis. Net inflows into liquid alternatives from survey participants are predicted to grow by 44% over the next 12 months, which translates to $49bn in new flows, compared to $34bn over the last 12 months.
In response to investor demand, hedge fund managers are quick to diversify their product offering, with 42% of responding managers currently offering liquid alternative products, up from 27% last year. A further 34% would consider including such products. One quarter of managers plan to launch at least one alternative UCITS product in the coming year, and 29% have similar plans for alternative ’40 Act mutual funds.
The move towards liquid alternatives has been most pronounced among large, well established managers, with more than two thirds with $5bn+ in AUM managing such product for more than three years. A third of these managers plan to launch at least one new liquid alternative product
in the next 12 months.
Fundamental equity long/short is the most popular strategy for investors allocating to alternative UCITS and alternative ’40 Act mutual funds, which along with event driven and global macro represent the top three most sought after alternative UCITS strategies over the next 12 months. Fundamental equity long/short, fundamental equity market neutral and event driven are the top three most sought after alternative ’40 Act mutual fund strategies over the next 12 months.
Daniel Caplan, European Head of Global Prime Finance at Deutsche Bank, said: “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.”
Anita Nemes, Global Head of Capital Introduction at Deutsche Bank, said: “Liquid alternatives are the fastest growing segment of the asset management industry. This presents a significant opportunity for investors to access better risk- adjusted returns, and also for hedge fund managers who are increasingly becoming solution providers to their investors.”
The study surveyed 212 investor entities worldwide managing more than $804bn in hedge fund assets and 86 global hedge fund managers representing $6tn in firm wide assets.
The study is not publicly available at this time.