Research indicates boost for alternatives
Investors across the globe have channelled nearly $200bn (£134bn) into more than 1,000 alternative and absolute return Ucits funds, according to research by Strategic Insight, the research and consulting think tank.
Ucits funds, which are based in Europe but sold internationally, are seeing growing interest from Asia, Latin America and other emerging regions, as well as from US institutional investors.
Jag Alexeyev, head of global research at Strategic Insight, said: "The search for better performance and diversification is encouraging innovation in the fund industry and leading to alternative products that were unimaginable in a retail context just a decade ago."
As an example, Mr Alexeyev cited the existence of exchange traded funds that offer hedge fund exposure, linked to a managed account platform.
However, while several alternative Ucits funds have been quite successful, attracting billions of dollars of assets, Strategic Insight's research showed that almost 75 per cent of alternative and absolute return Ucits funds have raised less than $100m each to date.
The think tank said many of the winners were traditional fund companies that had expanded their investment capabilities to deliver uncorrelated returns, but with lower volatility.
Hedge funds offering regulated 'Newcits' funds represent rising competition, but many of them have yet to gain meaningful market share because distributors and wealth advisers are looking for products with lower volatility, low correlations and more consistent returns, it said.
Distributors are also concerned about risk, performance trade-offs, fees and levels of service that many managers still do not provide, it added.
But Strategic Insight predicted that, as comfort levels rise and funds establish track records, alternatives will become hard to ignore.
Strategic Insight's research - Exotic to Mainstream: Growth of Alternative Mutual Funds in the US and Europe - conducted in conjunction with global investment outsourcer, SEI, showed demand for alternative and non-correlated strategies was growing in the US.
The study suggested managing innovation on a global basis was more important than ever, but that it required improved management of risk, liquidity, expectations and distribution relationships, along with greater transparency, better communications and investor protection.