Majority Of Hedge Funds Warm to 40 Act Mutual Funds, Says Study

Infovest21’s “Hedge Fund Use of ’40 Act Registered Investment Funds” survey found that 53% of the surveyed managers have either launched a 40 Act mutual fund, are in the process of launching one or are considering doing so. Another 25% are a sub-advisor to a 40 Act fund or considering becoming a sub-advisor. Eight percent have decided not to launch a 40 Act fund.

The survey polled over 130 hedge fund managers and was sponsored by McGladrey and Atlantic Fund Services.

Lois Peltz, president of Infovest21, said, “The survey also found that over three-quarters of the managers said launching a 40 Act fund was worth the time and effort. The remainder of respondents said it was too early to tell.”

Hedge fund performance was also found to outperform liquid alternative performance: On a year-to-date basis, hedge funds have returned 6.8% compared with 4.1% for the 40 Act fund.

For 57% of the respondents, it took 6-12 months to launch a 40 Act fund. Forty-three percent of the respondents said the start-up costs ranged between $50,000 and $99,999. The average estimated breakeven assets under management for the flagship 40 Act fund was $39 million. Cost was a primary concern with establishing and managing a mutual fund, as was cannibalization of existing product.

Meanwhile, cost was the top criteria for managers selecting their service provider while culture/fit came in second at 77% and 69%, respectively.