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29 September 2015

Hedgeweek: Alternative UCITS benefit from liquidity in Europe


A report from Cerulli Associates finds that the hunt for a better return is leading growing numbers of European retail investors toward alternative funds.

 

Cerulli Associates says providers are making hitherto closed-off vehicles more accessible, boosting liquid alternatives including retail-friendly hedge funds, which are now available on direct-to-consumer platforms. Overvalued equity markets and negative bond yields mean that more investors are prepared to consider more complex solutions, including vehicles regarded as high risk, the firm found.

However, Cerulli suggests that to fully capitalise on this trend, managers should rethink pricing strategies, dropping performance fees, for example, and produce fact sheets that are clear and easily understood.

"With active funds having a hard time justifying their fees when passives perform just as well, alternative funds may find it even harder," says Barbara Wall, Europe research director at Cerulli. "Asset managers might also consider dropping the performance fee, especially if it's just for outperforming cash."

Further improvement in transparency is needed, says Cerulli. The main attraction of alternative funds is that they offer returns not correlated to the mainstream asset classes. This tends to lead to investing in areas not widely understood. The heavy use of derivatives, for example, can leave some investors confused as to how the fund's strategy is executed.

Brian Gorman, an analyst at Cerulli, notes: "Fact sheets often fail to provide the details of such matters, with managers arguing the information would serve no purpose. Similarly, absolute return funds vary in their disclosure about their short positions. Some only reveal general details, reluctant to identify individual companies."

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