Manager convergence still an emerging trend

Hedge fund and traditional asset managers in the US are taking more steps towards convergence although investors are still resistant to the idea.

Over half of hedge fund managers interviewed by BNY Mellon and Greenwich Associates said they had taken steps towards launching long-only or hybrid funds. A considerable proportion (44%) of the remainder had thought about it.

Almost half (46%) of traditional managers said they had taken steps towards launching a hedge fund-like product to take advantage of institutional investor demand for such products.

But 57% of investors surveyed said they would not be receptive to using a hedge fund manager for a non-hedge strategy. A larger proportion (60%) said they would not use a traditional manager for a hedge fund strategy.

Investors said they would be more likely to consider a cross-over fund if the manager employed staff with sufficient experience or the fund offered enough transparency.

Many hedge fund managers thought they would have to make few changes to their operational structure to run a hybrid, regulated or long-only fund. The area where they acknowledged most need for change was disclosure, where almost 60% said disclosure policies would have to be improved if they were to move into traditional funds.

Both traditional and hedge fund managers acknowledged the other group would have some advantages in crossing over into new strategies. Investors said hedge fund managers would offer better risk management and experience in generating superior returns, while traditional managers could have a better understanding of client needs and be more transparent.

Just under half the investors surveyed said regulation would accelerate convergence, compared to only 33% of hedge fund managers and 30% of regulated fund managers.

Greenwich Associates interviewed 30 traditional managers, 23 hedge fund managers and 18 large institutional investors in the US to compile the report.