Jul. 2013

How Hedge Funds May Take More Assets from Traditional Managers

There has been great fanfare around the incredible rules set for implementation of the JOBS Act for hedged funds and other private offerings – and there should be. The restrictions lifted are more than most of the industry had hoped for, and the ICI and lobbying groups feared. The majority of the media coverage I have been reading is centered on one of two concepts:

  1. The particulars of the lifted restrictions
  2. How horrible a thing this is for the public

The utility of the first set of articles has been drowned out by the attention-getting drama of the second set.

No one has discussed the elephant in the room, which is the threat to traditional asset managers in all three of their main channels; institutions, financial advisors and direct to retail.

For the past decade, market volatility and liability based investing has pushed many institutional investors (public pensions, foundations and endowments, family offices, corporate pensions and treasury) to seek smoother returns. There are consultants and managers specializing in this realm of volatility reductions and many of them fall into the category of alternative managers, aka ”Alts.”

Alts have been creeping into institutional portfolios at a rapid clip and most recently, the trend has been at the expense of traditional managers where institutions are reallocating. They are taking the money for the alt allocation from the same or similar asset class, and from traditional managers.

The JOBS Act will accelerate this process through increased awareness among institutional boards and the general public. It also allows more broad solicitation of consultants and institutional asset holders.

Now that the flood gates have opened, Alt managers can get “at bats” they never dreamed of embarking. With the right partner, alt managers may eat the marketing lunch of traditional managers. Traditional managers have been able to advertise and reach out to people they do not know for many years and few have done a great job marketing. On the FA and retail side established firms are more experienced marketers* and traditional manager may prevail.

We help both alts and traditional firms market.  In this new competitive landscape we appreciate how both alt and traditional managers will develop and market products that compete across alt/traditional spaces and in various structures from private partnerships to 40 act alt funds.

We continue to say with all of this change: let the best marketers and strategies win!



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