Demand For Retail Alts Products To Triple By 2017

May 15 2013 | 12:31pm ET

Global demand for retail alternative investment products, including hedge funds, will triple by 2017 to $939 billion, according to the latest research from Citi Prime Finance.

Citi's survey attributed the growing demand to a number of factors including 1940 Act regulations that make mutual fund and ETF structures more attractive for alternative strategies; Dodd-Frank regulations that have resulted in increased transparency for hedge funds; changes in wealth advisor compensation that have made ensuring a stable asset base critical; and the popularity of registered investment advisers, who have more discretion over client portfolios and can invest in alternatives.

The survey, based on 82 interviews with a variety of industry players, predicts retail demand for alternatives will focus on mutual funds and ETFs, which now manage $259 billion and which could manage $770 billion by 2017. Investors in Europe and elsewhere will look to UCITS products while smaller institutional investors will seek lower-fee, publicly offered products,  pushing overall global demand for these “liquid alternatives” to $1.3 trillion, a level equal to the total assets invested in all hedge funds in 2008.

“The bridge has been crossed,” said Sandy Kaul, U.S. head of business advisory services at Citi Prime Finance. “The convergence trend that has been blurring the linesbetween 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.”

Alan Pace, global head of sales and client experience at Citi Prime, said the emergence of “publicly available liquid alternatives” has already had an impact on the hedge fund industry, but that these are “the early stages of growth.”

The study also found an increase in the number of respondents describing hedge funds as “shock absorbers” offering “insurance” against losses, as opposed to primarily providing diversification and risk-adjusted returns.


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