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Global Hedge Fund Assets to Top $1 Trillion by 2004, in Part Due to the New Target Market of Merely


Date: Wednesday, June 19, 2002

Boston, MA, June 19, 2002 - - Hedge funds have been gaining popularity in both the U.S. and Canada as investors search for alternative investment strategies, particularly those with protection against market volatility. According to Financial Research Corporation (Boston), global hedge fund assets under management are expected to top $1 trillion by 2004, in part, due to the new target market of 'merely affluent' investors. Today, FRC announced the release of the first comprehensive research study to focus on the challenges of creating and marketing hedge fund products to "merely affluent" investors. Entering the World of Hedge Funds: Opportunities and Obstacles for Targeting The Affluent is a timely research study examining new developments in both traditional private hedge funds and the innovation of "registered" hedge funds in the U.S. "Given that redemptions outpaced sales of Canadian mutual funds for a second straight month in May, manufacturers in Canada should be looking past the mainstream product offerings into more specialized investment vehicles to retain assets," says David W. Enns of Credo Consulting Inc., FRC's joint marketing partner in Canada. Responding to periods of market volatility over the past two decades, high-net-worth and institutional investors have been turning to hedge funds and other absolute return vehicles to manage risk in their portfolios. But now, in this next wave of hedge fund product development, manufacturers are realizing the potential for registered hedge fund products to compete for the assets of the merely affluent clients as well. Until recently, hedge funds have been only "cocktail party cachet" among investors with $1 to $5 million in investable assets. With registered hedge funds - and more reasonable investment minimums, the opportunity is ripe to translate the cocktail chatter into actual sales. The new study looks at today's changing landscape, the increased interest in hedge funds among distributors, manufacturers, and investors; and provides a "roadmap" for new manufacturers to navigate the product development and distribution issues and the traps for the unwary. Some of the key findingsof the study include: -- Funds-of-hedge-funds are becoming the product of choice for advisors catering to high-net-worth investors, and the offering well suited for more down market clients as well. With approximately $55B in current total assets, funds-of-hedge-funds are garnering great interest as alternative investment vehicles. -- New entrants into the hedge fund industry today are in such a rush to be the first to market their product that they often find that they have not laid the right foundation for their offering. Instead, they are forced to retrench and rebuild, all at a great additional expense to the manufacturer. -- Proceed with caution. If a manufacturer believes that it has all the resources, infrastructure, technology, administrative support, and business plans required to achieve a successful hedge fund product launch, then the firm is probably less prepared than it realizes. The details involved in the product development process do not fall into the typical mutual fund template, and so many new entrants are creating their products and adjusting their support infrastructures as they go.