Hedge Funds go Mainstream as Institutional Capital Increases, Report

A report from Greenwich Associates reveals several trends suggesting that hedge funds are moving out of the realm of the alternative and into the mainstream. The report found that institutional capital is making up a growing portion of hedge fund inflows, and allocations to hedge funds by institutional investors around the globe are reaching levels at which they could have a noticeable impact on overall performance. The funds are also being obliged to meet the transparency, servicing, and other requirements of large institutional investors. They are diversifying their strategies and adding long-only options that appeal to many institutions. At the same time, the line between so-called “traditional” investment management firms and hedge fund managers is blurring as established asset-management organizations add hedge funds to their own product offering. Regulation is also normalising hedge funds, as compliance with US Securities and Exchange Commission rules will weed out some smaller hedge funds by increasing the barriers to entry and the perceived break-even threshold for hedge fund assets. “Although their initial appeal might have been the promise of home-run returns,” says Greenwich Associates consultant Chris McNickle, “hedge funds are maturing into a mainstream institutional investment product or asset-class, and a cadre of firmly established hedge fund managers has the potential to evolve into something of a second-generation asset-management industry.”


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