2013 saw alternatives becoming more popular amongst both institutional and retail investors, particularly as the convergence between alternative and mutual funds became more prominent. For 2014, these trends will continue, says Stephanie Miller, global head of J.P. Morgan’s Alternatives Investment Services, but there could be changes as to the makeup of these funds.
“2014 will be an interesting year for structure and attracting different money to a substantial market,” says Miller.
In particular, 2014 could see largest hedge funds growing even larger, as some of the smaller funds have had trouble starting out. “Key managers are taking in more money from big institutions as well as retail,” says Miller.
Research from Preqin supports this observation, finding that the proportion of hedge fund investors interested in first-time funds has dropped to 38% in 2013, down from 42% in 2012. And although there has been an increase in hedge fund managers, Preqin found that the number of hedge fund launches has dropped, with only 44% of fund management groups established in 2013 having launched their first vehicle as of November 15, 2013.
Still, the outlook for the alternatives sector is bright, especially for regulated alternatives. “Alternatives have been the place to be. The structure of these products will be the question,” says Miller. The last quarter of 2013, especially in Europe, saw an increase in regulated funds, she says. “If you’re going to stick your toe in the water, you’re going to do it in the most controlled and regulated way, and that’s a Luxembourg product.”
1940 Act mutual funds have also seen recent growth, and that trend should continue into 2014 and beyond. Alternative mutual funds only account for 2% of the current mutual fund industry, according to recent research from Deutsche Bank, but this number is expected to rise. Research firm Cerulli Associates estimates that over the next 10 years, this number will rise to 14% of the mutual fund industry.
“Allocators are continuing to allocate to the alternatives space, because they have to [find alpha]. So, we’ll find ways to make them more comfortable. It is all about liquidity, reporting, transparency and consolidation of data,” says Miller.
As for alternatives besides hedge funds, Miller says, “We’ve seen a lot of interest with infrastructure funds, specifically in Europe and Australia, as people seek to buy different types of assets. For the last five years, they haven’t performed particularly well, so I have a cautious, but optimistic, outlook.”
Australia in general, though, looks to be a source of growth for the alternatives industry because of the nation’s retirement reform, where superannuation contributions will gradually rise from the previous level of 9% up to 12% by 2019. Miller says that Latin America also looks like a region of growth for alternatives, as the overall economic conditions in these countries have been improving.
For 2014, Miller also sees fund administrators expanding their relationship with alternative funds in new ways.
“Clients are coming to us to manage collateral. In the past it has all been very much dealing with cash and T-bills. Now, there is renewed interest in other assets. [Clients] want to know if [administrators] can help with middle office and provide a strategic offering. Middle-office outsourcing has become more and more of the flavor,” she says.
With these trends in place, 2014 looks to be another big year for the alternatives sector and the administrators who service them.
Alternative Fund Structure is Key in 2014, Says J.P. Morgan Exec
2013 saw alternatives becoming more popular amongst both institutional and retail investors, particularly as the convergence between alternative and mutual funds became more prominent. For 2014, these trends will continue, says Stephanie Miller, global head of J.P. Morgan’s Alternatives Investment Services, but there could be changes as to the makeup of these funds.