Alternative Funds Expected to Account for 10% of Industry Assets

As competition not only among mutual fund companies intensifies but is further challenged by the encroachment of hedge funds, more firms will be offering alternative investment funds, the Financial Times reports. And as a result, assets in such funds could soon account for as much as 10% of the industry’s assets. Alternative asset funds include market-neutral and 130/30 and other types of long-short funds.

“Long-short is the future of the industry,” said Ric Thomas, manager of enhanced strategies at State Street Global Strategies. “It’s like the introduction of the forward pass in football.”

“When we survey financial advisers, accessing alternative investment strategies through traditional investment vehicles is what they want,” said Steve Deutsch, an analyst with Morningstar. “Investors want the strategies, but with liquidity, transparency and from known names.”

Certainly, the recent launches of long-short funds in the past two years underscore that. Since the beginning of 2005, more than 100 long-short funds were launched, putting the total at 168 such funds. Lipper data shows that assets in such funds have grown 600% in the past five years, followed by lifecycle funds, whose assets have grown 200% in that time.