Alternatives Migrate From Institutional To Retail Investors

Alternatives Migrate From Institutional To Retail Investors

Retail alternatives are a rapidly emerging sector of the asset management industry, reports SEIC.

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SEIC, a leader in investment services industry, in its report titled ‘The Retail Alternatives Phenomenon’ finds alternative strategies are being packaged as mutual funds in the U.S. and as Undertakings for the Collective Investment in Transferable Securities (UCITS), in the European market.

Alternative Strategies Are Used By Hedge Funds

Traditionally alternative strategies are used by hedge funds. However assets in the U.S. alternative mutual funds and Exchange Traded Funds have more than doubled since 2008. Alternatives now represent 883 portfolios with over $550 billion in assets. Alternative UCITS has also displayed similar growth trend.

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Interestingly enthused by the growth potential in the alternatives, nearly 75 percent of financial advisors are currently utilizing alternative strategies.

Private fund managers such as AQR, Morgan Stanley Alternatives Investment Partners, Blackstone Group and Carlyle Group have already launched or filed their documents for launching alternative products. The following graph provides a glimpse of the number of U.S. alternative mutual fund and ETF portfolios.

No  of US alternatives MF ETF Portfolios


Opportunity In Retail Alternatives Is Tremendous

Though the opportunity in retail alternatives is tremendous, the private fund managers should be willing to commit substantial time and resources. According to one attorney’s estimate, the start-up costs for an alternative mutual fund can be $100,000 to $200,000 higher than those for launching a hedge fund.

Hence the SEIC in its report suggests managers intending to launch a retail alternative fund must plan thoughtfully, think strategically and weigh in various considerations before deciding on the go-to-market strategy.

Alternatives: A Groundswell Of Interest

Taking a cue from the growth of alternatives, several industry analysts such as McKinsey & Company predict that the alternatives’ share of the U.S. mutual fund market is set to double from 2010 to 2015. The growth forecast provided by McKinsey & Company is presented in the following graph:

McKinsey Alternatives Growth Projections

The growing trend of retail alternatives presents a vast opportunity to private fund managers, amidst slowing trend seen from the institutional market.

Alternatives present a great opportunity for private fund managers to diversify their revenue streams, earn more consistent fees besides facility to market their capabilities with fewer restrictions.

Retirement plans, particularly DC plans, offer a great opportunity to private fund managers. They have since begun investing in real estate, inflation-protected Treasuries and commodities to offer enhanced yield potential. Besides DC market has started taking exposures to alternatives through target-date funds.

The Growing Demand For Retail Alternatives

According to the SEIC report, considering the growing demand for retail alternatives, it appears individual investors are moving to absolute-return investing and adopt alternative strategies for reasons similar to institutional investors such as taming volatility, bridging the gap between actual and targeted returns.

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The SEIC report concludes though the market for retail alternatives is still at its infancy, it provides an exciting long-term opportunity for private fund managers willing to diversify their revenue streams besides finding new outlets for their capabilities.

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Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports
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