Alternatives Boost Traditionals

Date: Tuesday, September 18, 2007
Author: Hedge Fund Daily

Traditional asset managers are enjoying a handsome payoff by offering alternative products, according to McKinsey. In a survey of 85 managers with total assets of more than $10 trillion, McKinsey found that two-thirds of them list alternatives among their offerings, and that those firms record more than one-third of their institutional revenues from those sales, a percentage the report called “astonishing.” Just five years ago, according to the firm, “that proportion would have been close to nil.” High-return and “enhanced passive products” are grabbing the most new business at the expense of lower-risk and balanced products. Benefiting the most from the move toward alternatives are boutique firms, which are additionally attractive to investors when they boast star managers and quant capabilities, says McKinsey. Traditional asset managers are benefiting from alternative investments—namely hedge funds—in another way. Financial News reports that HFs, burnt by the credit crisis, are being forced to sell debt. That, according to David Gardner of M&G Investments, “leaves the more permanent capital, like us, as well as a long tail of regional banks and some newer, opportunistic hedges that are buyers in the market. The power has shifted from the borrower to the lender.”