DB Study Says Investors Poised To Pour $50B Into Liquid Alts.

Sep 8 2014 | 10:42am ET

Investors continue to thirst after hedge fund liquid alternatives, according to a new survey from Deutsche Bank.

The study, From Alternatives to Mainstream (Part Two), surveyed 212 investor entities worldwide managing more than $804 billion in hedge fund assets and 86 global hedge fund managers representing $6 trillion in firm wide assets. 

Over half (51%) of the participants said they were allocating to liquid alternatives products, up from 28% in 2013. Moreover, almost three quarters of alternative UCITS investors and nearly two thirds of investors into alternative ‘40 Act mutual funds plan to increase their allocations.

Net inflows into liquid alternatives from survey participants are predicted to grow by 44% over the next 12 months, which translates to $49 billion in new flows, compared to $34 billion over the last 12 months.

Liquid alternative investments are now the fastest growing part of the asset management industry. Alternative UCITS assets have grown over 40% annually since 2008, while the broader hedge fund industry has grown 13% and the wider European UCITS industry only 2%. Alternative mutual funds have grown by 38% annually during this period, compared to 9% for the U.S. mutual fund industry.

A full 42% of responding hedge fund managers currently offer liquid alternative products, up from 27% last year. A further 34% would consider including such products. One quarter of managers plan to launch at least one alternative UCITS product in the coming year, and 29% have similar plans for alternative ’40 Act mutual funds.

The move towards liquid alternatives has been most pronounced among large, well established managers, with more than two thirds with $5 billion+ in assets under management managing such product for more than three years. A third of these managers plan to launch at least one new liquid alternative product in the next 12 months.

Fundamental equity long/short is the most popular strategy for investors allocating to alternative UCITS and alternative ’40 Act mutual funds which, along with event driven and global macro, represent the top three most sought after alternative UCITS strategies over the next 12 months. Fundamental equity long/short, fundamental equity market neutral and event driven are the top three most sought after alternative ’40 Act mutual fund strategies over the next 12 months.

Daniel Caplan, European head of Global Prime Finance at Deutsche Bank, said: “The growth of liquid alternatives is a very real opportunity for investors who have previously been unable to access hedge fund strategies to do so in a liquid and regulated structure.”

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