Hedge funds are increasingly offering non-traditional products to their clients, according to a survey conducted by Deutsche Bank. Going beyond the traditional long/short hedging strategy, managers are now all-in on the bull market. The survey further noted that the the most popular non-traditional product that these hedge funds were offering was the long-only strategy. Of the $528 billion in firm-wide assets managed by the hedge funds, $179 billion was invested in non-traditional products, of which long-only made up $96.8 billion of the assets.
Hedge funds meeting demands of market
The reason that these managers cited for their move to unconventional products was principally the drive to diversify the portfolio and also to meet demand of existing clients. In DB’s survey 76% of the managers answered the need to diversify their model as one of the top three reasons whereas 67% said it was to answer the demand from their clients. Specifically in the long-only vehicles, 40% of AUM comes from existing investors.
In the bull markets of this year, several hedge funds launched long-only funds or expanded their business. Deutsche Bank’s report noted that the larger the size of the fund, the more likely it was to dip into non-traditional offerings. The report points out that 81% of the funds with more than $5 billion under management had at least one non-traditional product. The concentration of the long-only fund as an alternative strategy was most popular with the European managers, where 64% of the non-traditional products were long-only compared to 38% in the U.S.
Long-only attracts big names
Most of the top tiger cubs have long only funds, including big names like Lone Pine Capital, Maverick Capital and Viking Global. Whereas managers like $6.2 billion hedge fund Tiger Global and $6 billion Coatue Management launched new funds this year.
Deutsche Bank further notes that taking the unconventional route is nothing new for the hedge funds, apparently three-fourth of the managers who are running non-traditional hedge fund products have been doing so for three years, of which 40% have a 10-year experience.
The long-only products mostly attract institutional investors whereas private wealth firms and funds of funds account for half of the investors in the UCITS offerings.
The report also found that among those hedge funds that were planning to launch a non-traditional product, 60% are doing it on requests from their clients.