More than 60 percent of traditional managers reported outflows and that they had missed on assets under management (AuM) estimates as alternatives have gained market share at traditional funds’ expense.

Funds

“Asset mix (bond over equity) correlated well with excess returns in late 2Q, but earnings results and idiosyncratic flow trends have mattered more in earnings so far,” wrote Marc Irizarry of Goldman Sachs Equity Research, “and flow gainers are outperforming (with alternatives garnering share).”

Smaller Funds Might Have Been Overlooked

Even though most traditional managers are missing AuM estimates by around 50 basis points, revenues overall are increasing as the intra-quarter average beats quarter-end levels. Total inflows are strong, it’s just that a lot of the inflows are going to smaller funds that might have been overlooked in the past instead of traditional mutual funds.

One such company benefiting from this move to alternative funds is Simple Alternatives LLC, which announced today that its AuM had jumped by 25 percent over last quarter.

“Institutional and retail investors have come to embrace ‘liquid alternatives’ recognizing the important role in terms of diversification, liquidity, and other desirable characteristics the strategies can serve in a portfolio,” said James K. Dilworth, Simple Alternatives Founder and CEO. “Growth in liquid alternatives has been driven in a large part by institutional consultants and financial advisers who typically use hedge funds as part of an overall portfolio allocation strategy.”

Alternative Strategies Used By Three-Quarters Of Financial Managers

The company cites a team of long/short equity managers focusing on the fundamentals, and a specific push to give investors better access to hedge fund managers as the reason behind its success. Dilworth also claimed in a press release that alternative strategies are used by three-quarters of financial managers, and that more managers are increasing their use of alternative strategies every year.

“With a low historical correlation to US bonds and equities, alternative strategies such as long/short equity are gaining traction with investors that are concerned about current market valuations, and the outlook for key asset classes, in a post-Bernanke investment environment,” said Dilworth.

The Goldman Sachs Group Inc (NYSE:GS) report was prepared by Marc Irizarry, Danielle Matsumoto, Stephen Jones, and Anupam Mathur.