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BlackRock expects more hedge funds to launch ETFs with exposure to underlying funds

Thursday, June 30, 2011
Opalesque Industry Update – BlackRock expects ETFs and ETPs to grow assets to over $2tln by 2012 and to continue to grow by 20%-30% a year for the next few years. After 18 years of existence in the US, the industry is experiencing a rapid cycle of growth as investors’ value liquid products post financial crisis. With the ETF industry holding over $1tln in assets, they continue to also gain popularity with hedge funds as both investments to include in larger strategy as well as hedge fund vehicles that solely invest through ETFs.

BlackRock’s ETF updates have anticipated continued growth of ETF usage in the hedge fund industry for some time, and the firm continues to have expectations that more managers will embrace these vehicles. In addition to the easy access of ETFs, hedge funds are noticing their appeal to investors, and their powerful distribution networks, the firm notes. Expectations are that in addition to using ETFs as investments more and more large hedge fund firms will look to establish their own ETFs with in-house funds as the underlying exposure, in an effort to broaden their reach to potential investors.

“This will on one hand, give more investors access to the asset class and the ability to do so in small sizes, with daily liquidity, but also make it challenging for them to understand what they are investing in compared to the historical daily transparency of the underlying portfolio in low-cost index based exposures which ETFs have become known for,” says the latest BlackRock ETF Report.

BlackRock’s expectations come on the heels of firm’s such as IndexIQ’s launch of hedge fund replication ETFs, which IndexIQ’s CEO Adam Patti told CNBC was a move “to democratize alternatives”, and make them available to a wider investment audience. The firm’s flagship ETF product has grown from $5m to $140m since its March 2009 launch. (Source)

Kirsten Bischoff

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