Friday, 25 July 2014
Last updated 20 min ago
Jan 24 2008 | 8:43am ET
In recent years, institutional investors have had a nearly insatiable appetite for alternative investments, a trend widely expected to continue for years, possibly even decades, to come. But a new report from the TABB Group throws cold water on that thesis, warning hedge funds and other active asset managers of the threat posed by index-based investing.
Report author Adam Sussman, research director at TABB, calls the appetite for index-based investments “nearly insatiable,” noting that active managers are already losing out on some $12 billion in management fees due to the $1 trillion U.S. investors have put into index-based products. That pain has so far been felt mostly by traditional asset managers, such as mutual funds, but Sussman cautions that hedge funds, which manage some $2 trillion globally, are not immune.
“There’s no slowing down the tide of indexing,” he said. “Pension plans need better ways to measure the performance of alternative asset managers. ETF, exchange-traded note and other index-based managers will need more products in the pipeline.”
Specifically, hedge fund replication strategies could put a serious crimp in hedge fund managers’ styles, costing them further billions in fees. Sussman says that by next year, some 70% of all pension plans will be utilizing customized benchmarks. And there are plenty available: He estimates that there are 48,256 possible indices versus 40,365 publicly-traded companies.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…