Coming to a 401K Near You

As the institutionalization of the alternative investments business continues to grow and mature, the next great opportunity set for private equity and hedge fund managers might very well lie not only with large defined benefit plans, but with their defined contribution and 401K equivalents. Liquid alternative vehicles, typically in mutual fund format in the U.S. and UCITS in Europe, have been gaining significant momentum with over $259 billion in AUM in the U.S. alone.


9 July 2013

As the institutionalization of the alternative investments business continues to grow and mature, the next great opportunity set for private equity and hedge fund managers might very well lie not only with large defined benefit plans, but with their defined contribution and 401K equivalents. Liquid alternative vehicles, typically in mutual fund format in the U.S. and UCITS in Europe, have been gaining significant momentum with over $259 billion in AUM in the U.S. alone. That number is predicted to increase to increase to $770 billion by 2017 with global retail-focused assets expected to climb to $939 billion over the same period.

As is the case when any industry looks to an untapped and unfamiliar marketplace, there are number of challenges that hedge funds and private market managers will face with this evolving landscape. New regulations, operational requirements, sales models, distribution and marketing initiatives will require new paradigms in how fund managers think about growing their businesses in the retail channel markets. How fund managers communicate with this new influx of investors and advisors (whether by design or mandated by regulation) will be an important decision as marketing, reporting and compliance requirements will change significantly in this new retail frontier. Competing effectively not only against each other but now against active, long-only managers for a share of the retail pie will surely force alternative fund managers to change how they think about branding, transparency and the systems and operations that will be needed to support these new initiatives.