Latest research from Preqin finds that liquid alternative products, such as UCITS and alternative mutual funds, have out-performed hedge funds. The average alternative mutual fund returned 4.36 per cent in 2014, while the average hedge fund saw a return of 3.78 per cent. The average UCITS fund returned just 1.45 per cent.
Liquid alternatives have opened up the possibility of hedge fund investment for more than just the largest investors. The report states: “These regulated products, with lower investment minimums and fees, have proved attractive to retail clients, and institutional investors and funds of hedge funds have shown an increasing interest in these products.”
Institutional investors cited liquidity as their principal reason for investing in liquid alternatives, with 53 per cent citing that as their main reason. Some 31 per cent liked the transparency of a liquid alt, while 28 per cent liked the formal structure of a fund and 19 per cent appreciated the lower fees.
According to their survey, Preqin found that fund of hedge funds managers make up the largest proportion of investors with an allocation to alternative mutual funds (62 per cent) and UCITS hedge funds (48 per cent). The report says: “Fund of hedge funds managers were among the earliest adopters of these products, and many have begun to use liquid alternatives as part of their wider hedge fund investments.”
Asset managers and wealth managers account for 12 per cent and 11 per cent respectively of investors allocating to UCITS funds. The report found that the liquid, transparent and familiar structure meets the needs of the clients these asset managers and wealth managers serve, and these groups play a significant role in channelling capital into liquid alternatives.