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Alternative Market Briefing

Hedge funds try new expensive products to attract retreating institutional investors

Friday, November 07, 2014

Benedicte Gravrand, Opalesque Geneva:

Institutional investors’ shifting allocation strategies are driving hedge funds towards new products, according to Ernst & Young’s 2014 hedge fund and investor survey called Shifting strategies: winning investor assets in a competitive landscape.

As there are less assets coming from institutional investors, hedge funds are trying to new products to attract them, while not fully understanding these products’ costs and their effect on margins, the survey says.

"Given this backdrop, managers are trying to offer investors more flexibility on fees and tailored offerings via separately managed accounts and long-only funds," says Michael Serota, Co-Leader, Global Hedge Fund Services at EY. "They are hoping to attract a new class of investor – private wealth platforms – as well as developing registered liquid alternatives products to try to attract new investors. The largest managers are even developing sub-advisory capabilities and insurance-related products."

Almost a quarter of managers that launched a new product in the last three years talked about negative impact on margins. They included sub-advisory arrangements (43% said it had a negative impact), registered products (30%) and separately managed accounts (SMAs) (24%).

"The impact on margins for these new product......................

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