Global demand for retail focused, liquid alternative investment products is expected to triple and touch US$1 trillion mark by 2017, according to a Citi Prime Finance study.
The outlook and analysis is contained in the fourth edition of Citi Prime Finance’s annual survey of hedge fund industry trends, this year titled The Rise of Liquid Alternatives & the Changing Dynamics of Alternative Product Manufacturing & Distribution.
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The survey is based on 82 interviews conducted in the US, Europe and Asia with hedge fund managers, asset managers, private equity companies, consultants, funds of hedge funds, pension funds, sovereign wealth funds, endowments and foundations, and intermediaries representing US$336 billion in hedge fund assets and $5.6 trillion in overall assets.
In the US alone, where retail participation in alternative investment focused mutual funds and ETFs currently stands at US$259 billion, new demand will push assets in these vehicles to US$770 billion by 2017, says the study report.
"Add to that expected new demand for liquid UCITS-structured products in Europe and elsewhere and the total forecasted growth in retail assets moving into hedge funds and other private funds jumps to US$939 billion," the report added.
In addition, demand from smaller institutional investors for lower-fee, publicly offered products will push overall global demand for these so-called liquid alternatives to US$1.3 trillion, a level equal to the total assets invested in all hedge funds in 2008.
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By GlobalDataSandy Kaul, US head of business advisory services at Citi Prime Finance, said:
"The bridge has been crossed. The convergence trend that has been blurring the lines between traditional asset managers, hedge funds and private equity firms is complete. Investors can now source an entire range of products from each type of investment firm and for the more liquid of these strategies they can also source the management of the funds in a publicly or privately offered fund structure."
Alternative assets include investments beyond stocks and bonds which tend to be less liquid or tradable. Three of the most recognizable strategies within the publicly offered liquid alternative sector are long/short equity, market neutral and bear market funds. Others are non-traditional bond funds, managed futures and currency funds, according to the survey.
The survey found these new products being managed in parallel with privately offered funds, allowing the same manager to isolate a subset of their more liquid trading ideas and package them in a publicly offered fund wrapper.
