Hedge funds are not always known for their transparency, even with their own investors, but side industries have popped up offering investors hedge fund-like strategies in a more open wrapper.
Some asset managers are pinning their hopes on growth in liquid alternative ETFs. Those kinds of ETFs are expected to triple in assets over the 12 months, according to a Greenwich Associates survey on behalf of IndexIQ.
Money continues to pour into managed account platforms like BNY’s HedgeMark, despite the hedge fund industry losing assets.
Apart from simple curiosity about what they’re invested in, big investors worried about putting money in crowded trades are growing more sophisticated with what they can do with data about strategies and the sources of return.
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A receding tide is not sinking all ships for hedge-fund like strategies.
The $3.2 trillion subset of the asset management space has had six straight quarters of investor outflows according to the latest data from industry tracker eVestment, with $77 billion more assets leaving hedge funds this year than going into them. Underwhelming returns compared to the market coupled with high fees have soured investors on the space they once clamored to get into.
But some structures offering hedge fund-like strategies are booming. Managed account platforms that let investors set up an individualized account with a manager, continue to grow, with BNY Mellon’s HedgeMark platform, where a hedge fund manager runs a pool from a third-party investor who gets to customize the strategy, growing assets by nearly a third in the first half of this year to $21 billion.
Liquid alternative ETFs, which look to mimic the strategies of hedge funds with less leverage, are seen nearly tripling in assets over the next 12 months, according to a study from Greenwich Associates commissioned by ETF provider IndexIQ, from $47 billion to $114 billion. Previously, investors with the biggest pools of money — pensions, endowments, and others — were not comfortable enough with the ETF structure to consider this option, the study stated.
The industry’s biggest investors, it turns out, still are attracted to hedge fund-like strategies — they just want to know more about what they are investing in. Apart from simple curiosity about what they’re invested in, big investors worried about putting money in crowded trades are growing more sophisticated with what they can do with data about strategies and the sources of return.
“Transparency is a key driver in this demand,” said Andrew Lapkin, the CEO of HedgeMark. On managed account platforms, investors can get daily transparency into trades and risk, instead of a monthly letter that does not give a real-time look at the portfolio. Groups like the CFA Institute have tried to shed more light on hedge fund performance with codified performance-reporting standards, but it still requires industry-wide buy-in.
See more: An SEC official is siding with big asset managers that say hedge funds like Saba Capital should be banned from taking activist stakes in closed-end funds
Liquid alternative ETFs, …read more
Source:: Business Insider