The increase in product diversification is seemingly more pronounced in larger, better-established businesses, with 81% of surveyed managers running more than $5bn (€3.7bn) in hedge fund assets having launched at least one non-traditional hedge fund product.
More than three-quarters, or 77%, of respondents running a diversified suite of products have managed non-traditional hedge fund products for more than three years, including 40% with more than a decade of experience.
Deutsche Bank said such managers with extensive resources, experience and brand loyalty were particularly well-placed to respond to growing client demand for bespoke products.
Strong industry growth
From Alternatives to Mainstream interviewed 200 investor organisations collectively responsible for $625bn, and 60 global hedge fund managers representing $528bn of group assets.
More than half the respondents said they allocated to non-traditional hedge strategies, including 36% investing in hedge-run long-only funds, and a third investing in liquid alternatives run by hedge fund managers.
One-third of all investors increased their allocations to non-traditional hedge fund products last year, and another 43% intended to do so over the following 12 months.
The $2.51trn hedge fund industry grew 12% annually over the past five years, showing a healthier recovery since the financial crisis took hold than either the US mutual fund industry, which grew at 10% a year, or the European Ucits market, which grew 3% a year over the timeframe.
‘Gap will narrow’
Half of the manager respondents run non-traditional hedge fund products. Of these, 48% have seen more than half their new business flow into this space, since 2008.
According to the report, one-fifth of all responding managers planned to launch at least one non-traditional hedge fund product over the following 12 months, and 42% were considering it.
With a variety of new growth channels, Deutsche Bank said it expected hedge funds to become a more significant part of the wider asset management industry.
“While assets residing in liquid alternatives and hedge fund-run long-only products currently represent a small portion of these markets, recent growth rates in each of these arenas suggest that the gap will narrow in the coming years, and that it will be driven by hedge fund managers.”