The growth of managed futures AUM has slowed down recently – a couple of mediocre years while stocks soar will do that. Given what we know about risk and investors’ desire to avoid big drawdowns, we don’t think that will last forever. But even we were a bit surprised by a new survey which claims that demand for retail alternatives (including hedge funds and managed futures) is set to triple in just four years. Via Finalternatives:
Global demand for retail alternative investment products, including hedge funds, will triple by 2017 to $939 billion, according to the latest research from Citi Prime Finance…
The survey, based on 82 interviews with a variety of industry players, predicts retail demand for alternatives will focus on mutual funds and ETFs, which now manage $259 billion and which could manage $770 billion by 2017. Investors in Europe and elsewhere will look to UCITS products while smaller institutional investors will seek lower-fee, publicly offered products, pushing overall global demand for these “liquid alternatives” to $1.3 trillion, a level equal to the total assets invested in all hedge funds in 2008.
Investors looking to alternative investments is good news, but that growth headed for retail mutual funds and ETFs? It’s frustrating, to say the least. We’ve been very vocal about the problems with these products, and we still think managed accounts are the best way to access the space if you have the capital for it.
That’s not to say that all retail products should send investors running in the opposite direction. We’ve been keeping a close eye on the space for a while now, and while it’s true that most of these funds are horrid – loaded with unnecessary fees and offering a product that is “alternative” only name – there are a handful who appear to be doing it right. Picking them out from amongst the chaff is the tricky part.
It’s good to see more investors seeking access to alternative investments, but we are a little worried that the flood of bad offerings out there will end up burning investors who are venturing into the space for the first time.