Europe-Based Investors Driving Demand for Regulated Hedge Fund Structures – September 2015

by Nat Auld

  • 24 Sep 2015
  • HF

Preqin’s Investor Outlook: Alternative Assets, H2 2015 revealed that 35% of investors feel fees are a key issue facing the hedge fund industry in 2015. This, among other factors, has led to a growing appetite for regulated hedge funds. Within Europe, UCITS-compliant funds have been meeting this demand for a number of years, while a similarly regulated group of funds has been growing in prominence across the US: ’40 Act funds, which provide investors with the ability to gain exposure to hedge-like strategies in a mutual fund format, with more frequent redemptions, no lock-ups and lower fees.

Europe is the primary region for institutional investors (excluding fund of hedge funds managers) that prefer highly regulated hedge fund structures, with the chart above showing that 56% of investors allocating capital to such vehicles are based in the region. Given the proliferation of UCITS funds in Europe, it is unsurprising that these are being sought by the majority (68%) of those investors looking to gain exposure to regulated hedge funds. Meanwhile, 22% seek exposure to alternative mutual funds and 18% to listed funds.

Wealth managers are the most prominent investor type targeting regulated hedge fund structures, constituting 18% of all investors (excluding fund of hedge funds managers) seeking exposure to them. This is despite only accounting for around 11% of the number of investors in the hedge fund universe. Private sector pension funds and foundations are the next most prominent groups, each forming 16% of investors targeting regulated hedge funds, followed by asset managers (14%) and family offices (9%). It is unsurprising that wealth managers and family offices are so well represented in this group as liquid alternatives tend to appeal to smaller investors and those serving private or retail clients, likely due to their similarities with more traditional mutual funds and their increased transparency, as well as lower fees and minimum investments.

As investors continue to look for reduced fees, as well as liquidity and transparency, it is likely that demand for more regulated hedge fund structures will continue to grow.

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