Asset in traditional long-only equity funds will grow a scant 3% by 2010, but assets in 120/20, 130/30 and other types of alternative investments will skyrocket by 141% from $140 billion this year to nearly $2 trillion by 2010, according to a new study from TABB Group.
“A major change is underway at alpha-seeking firms,” said Larry Tabb, founder and chief executive officer of TABB Group, speaking of pension plans, trusts, endowments and foundations, as well as high-net-worth individuals. “They are becoming more creative, moving overseas and toward frontier markets, moving up and down the capital structure, moving toward shorter-term, event-driven strategies and longer-term holding strategies that resemble private equity-type investments.
”And shorting and leverage, used by the first hedge fund as early as 1949, are becoming more sophisticated and mainstream, proven by the explosion in assets under management in enhanced active, enhanced long and short extension equity strategies,” Tabb said.
The TABB report was based on interviews with 67 portfolio managers, chief investment officers, heads of research and senior managers of traditional equity funds, hedge funds and funds-of-funds.
Nearly half of them said they believe their greatest source of returns will be generated by new geographic markets. They also indicated that the buy side will continue to beef up its research and turn to independent research providers rather than rely on the sell side.
Forty percent of firms said that trading costs were the most significant cause of lost alpha.