Hedge funds may move away from liquid alternatives, says Linedata

The number of liquid alternatives fund launches will slow in 2016 after years of growth, believes one industry expert.

Hedge funds have turned to liquid alternatives in recent years as they were looking to offer products to meet growing demand for absolute return in retail friendly structures like UCITS or 40Act funds.

Lower fees and added complexity involved in fitting alternative strategies to retail structures made them less lucrative for hedge funds, but many looked to this as a source of capital.

As hedge funds and their biggest investors become more comfortable with the new regulation though, Ed Gouldstone, hedge fund product manager at Linedata believes we could see hedge funds less eager to launch these products themselves directly.

“For a while we saw a lot of hedge funds launching liquid alternatives and UCITS funds,” he said.

“In the last few months however, this has started to turn back around and they seem to be more comfortable launching more traditional offshore products.”

Gouldstone added that tougher market conditions would be a contributor to this trend, with alternative strategies considered to be lacking in leverage as opposed to their traditional counterparts such as offshore funds.

Gouldstone added that such a trend would benefit service providers in the industry.

“Small asset management firms are currently taking on some of the bigger counterparties such as custodians and registration channels, which can be a lot of effort.

“Some of these difficulties – particularly those that smaller companies have faced – will be ironed out in the future as if you’re a big manager already running a traditional product the strategies are already in place but the workload may be less.”