Infovest21: 17% Of HF Managers Sub-Advise '40 Act Funds

Mar 19 2014 | 10:43am ET

A significant number of hedge fund managers now serve or are considering serving as sub-advisors to '40 Act mutual funds, according to new research from Infovest21.

While only 7% of the hedge fund managers polled offer mutual funds, 17% act as sub-advisors to '40 Act mutual funds of funds.

"Of those not sub-advising, over 60% do not plan to move in that direction in the next year,” said Lois Peltz, president of Infovest21. “However, 27% do plan to move in that direction while another 12% are considering it.”

Of those not offering a '40 Act mutual fund, 12% said their strategy is not suitable while 8% highlighted the cost as the main reason for not taking this approach. Another 8% cited the lack of incentive fee as the primary stumbling block. Other reasons included being too small, generally not liking retail funds, daily liquidity issues or their focus being on commingled products.

The survey finds that commingled vehicles account for about 47% of the managers' product base while customized mandates and retail products account for 37% and 11% respectively.

High-net-worth individuals and family offices account for 24% of the average hedge fund's investor base; pension funds for 12%; and financial institutions, funds of funds and foundations for 11% each.

Managers expect high net worth/family offices, pensions and insurance companies' percentage of the investor mix to remain about the same while funds of funds' and corporations' percentages are expected to increase. The percentage for foundations and other financial institutions is expected to fall.

Large managers (those with over $1 billion in assets) had a higher percentage of pensions, endowments and foundations than did smaller and medium-sized managers. Medium-sized managers ($500 million to $999.9 million) had a relatively higher percentage of financial institutions while smaller managers (those with assets below $500 million) tend to have a higher percentage of family offices, funds of funds and corporate investors.

The average fee structure is a 1.5% management fee and a 16.6% performance fee.

The biggest challenge for 2014, as cited by 48% of the managers, is growing assets.


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