New York (HedgeCo.Net) The alternative investment industry continues to revolutionize the way many investors make allocations. From the early days of the original hedge fund to the current landscape where alternative mutual funds are seeing tremendous growth, the industry continues to change and is doing so at a rapid pace.
Industry research firm Preqin Ltd. released a report on the outlook for the liquid alternatives industry last month. The report seems to echo what we surmised late last year in a HedgeCoVest white paper entitled “The Evolution of Alternative Investments.”
Looking at some of the key findings from the report, Preqin found that the reasons investors use liquid alternatives are almost identical to the foundation of HedgeCoVest. Of those polled, 53% said they use liquid alternatives because of the increased liquidity, 31% use them due to the increased transparency, 28% use them due to the regulated nature of the structure and 19% use them due to the lower costs involved. Sounds a lot like the SALT acronym found on the HedgeCoVest platform- Security, Access, Liquidity and Transparency.
The one area in the SALT acronym that wasn’t covered in the “reasons for investing in liquid alternatives” states was the “A” which stands for Access. There was some additional information in the Preqin report about access and the average minimum investment for alternative mutual funds versus the average minimum investment for a commingled hedge fund. Turns out alternative mutual funds do offer a lower hurdle for investors to be able to invest in their funds with an average minimum investment of $190,000, but that still seems higher than it should be. Yes it is better than the $1.26 million average minimum investment for hedge funds, but to have the flexibility to invest in multiple funds or strategies using alternative mutual funds it is still pretty high. If you wanted to diversify among five different managers or strategies, based on the average minimum investment, you would need an account approaching seven figures. With a minimum investment of $30,000 on the HedgeCoVest platform, we feel our platform offers the greatest amount of accessibility than the average alternative mutual fund.
The report stated that the assets under management for alternative mutual funds stood at $240 billion at the end of 2014. That is considerably lower than the hedge fund industry’s AUM which is approaching $3 trillion, but the growth rate between the two is considerably different. From 2008 to 2014, the AUM of hedge funds doubled, from $1.4 trillion to $2.8 trillion. During the same time period, the AUM for alternative mutual funds increased approximately six-fold, from $40 billion in assets in 2008 to $240 billion at the end of 2014. Forecasts suggest that the AUM for alternative mutual funds could hit $1.2 trillion as early as 2018.
While the growth rate in alternative mutual funds is impressive, we believe the HedgeCoVest platform takes things a step further. Alternative mutual funds addressed many of the concerns hedge fund investors had, but they still have a pretty high barrier to entry in terms of minimum initial investments. In addition, the HedgeCoVest platform provides more transparency and greater liquidity than alternative mutual funds and as a result, the platform will be the next phase in the evolution of alternative investments.