Traditional investment managers in Europe are increasingly offering hedge fund products in response to strong client demand, according to a ...

Traditional investment managers in Europe are increasingly offering hedge fund products in response to strong client demand, according to a report by UK research group Investit Intelligence. The move has also boosted their revenues, the report said.

When the traditional long-only asset manager sets up hedge-fund products, those products come under the same regulatory environment as for the long-only funds, which could provide pension fund customers with some assurance, the report said.

Traditional funds are developing hedge funds because they improve the product range, give access to new clients and produce strong income growth, the survey showed.

It also points to the development of a two-tier hedge fund industry, with the funds offered by the traditional managers being more appealing to the pension fund market as they are more risk- and fee-aware.

A number of chief investment officers in the survey said a key driver for them to set up hedge funds was to bring back alpha – the extra return over and above market gains that a manager can add because of his special skills and experience. It also gives talented managers opportunities to run hedge funds in-house, so that they could generate income that is much more strongly linked to investment success thus stopping the brain-drain from traditional houses, analysts said. Brand risk is also avoided by using this strategy.

Investit Intelligence surveyed leading fund managers representing over 40 per cent of mixed-environment hedge funds, administrators, prime brokers, pension consultants and fund of hedge fund managers in Europe.