High Growth Reported for the Hedge Funds in Europe 2008

Date: Monday, July 7, 2008
Author: Canadian Business.com

The European Hedge fund market is going through a period of exponential growth; however the extent of the MBS crisis on the market is uncertain. This report assesses the opportunities and pitfalls for this market

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Hedge Funds in Europe 2008 - The European Hedge fund market is going through a period of exponential growth; however the extent of the MBS crisis on the market is uncertain. This report assesses the opportunities and pitfalls for this market.

http://www.reportlinker.com/p090018/Hedge-Funds-in-Europe-2008---The-Europea n-Hedge-fund-market-is-going-through-a-period-of-exponential-growth-however- the-extent-of-the-MBS-crisis-on-the-market-is-uncertain-This-report-assesses -the-opportunities-and-pitf

Introduction

This report presents views on the market for hedge fund investment based on a survey of 100 leading asset managers across Europe. The report, which covers mass market, high net worth and institutional customer groups, forms part of a series looking at the market for alternative investments in Europe.

Scope

Sizes the onshore hedge fund market in France, Germany, Italy, Spain and the UK and provides forecasts to 2012; Analyses legislative developments and their implications for growth in the European hedge fund market; Identifies the primary client segments and appropriate marketing and distribution strategies for individual countries.

Highlights

There will be strong growth in funds of hedge funds over the next year, with less demand for single hedge funds according to 65% of asset managers in Europe. Asset managers in Spain and Italy believe most strongly that the demand for funds of hedge funds will outstrip that for single hedge funds, followed by France, Germany and finally the UK. Across the five core economies in Western Europe - France, Germany, Italy, Spain and the UK - institutional investors now dominate the market for hedge funds. On average, slightly more than two-thirds of asset managers confirmed that this group represents their biggest customer segment for hedge funds today. In Italy, mass market investors may also be put off by the price of hedge fund investment, according to 40% of asset managers there. In Spain, on the other hand, demand from mass market clients is being limited by competition from capital-protected and structured products and inadequate promotion of hedge fund products by banks and advisors.

Reasons to Purchase

Assess the implications of recent and proposed legislation for your business development prospects in domestic and pan-European markets. Gain insights into your target client segments, based on the collective experience of your peers in the industry. Ascertain the strategic options for developing a hedge fund offering, including information on distribution, target markets, and competition.

Overview 1
Catalyst 1
Summary 1
Methodology 1
Executive Summary 2
The European hedge fund market continues to grow beyond its traditional high
net worth customer base 2
Key Issue: A significant onshore hedge funds market is constrained by
regulation, psychological barriers and a need for investor and advisor
education. 2
Institutional participation in the European hedge fund market is now
entrenched; but mass market investors also represent a growing client
segment 2
Clients still perceive the benefits of hedge funds for risk diversification
3
Reaching the mass market for hedge funds 3
Reaching the high net worth market for hedge funds 3
Reaching the institutional market for hedge funds 3
Asset managers rate Allianz, Deutsche Bank, Morgan Stanley, Man Group and
Barclays among the leading hedge fund providers 4
Table of Contents 4
Table of figures 5
Table of tables 6
Key Issue: The Future For Onshore Funds In Europe 7
A significant onshore hedge funds market is constrained by regulation,
psychological barriers and a need for investor and advisor education 7
France is one of the more successful hedge fund markets in Europe 8
Germany is constrained by complicated tax treatment of hedge funds 8
Italy has a EUR500,000 minimum threshold, which means only the HNW have
access to hedge funds 8
Spain has a EUR50,000 minimum investment which restricts its retail
opportunity 9
The UK is at a turning point in relation to its regulation of hedge funds 9
Sweden allows hedge funds and funds of funds to be marketed to retail
investors 10
In spite of market constraints, onshore hedge funds have grown much faster
than the overall mutual funds market in most countries, albeit from a small
base 10
Education is among the biggest challenges to further development in this
market 11
A lack of understanding about hedge funds is the main barrier to their wider
take up in Europe 11
Investor education across Europe is the key to wider hedge fund take up 12
Regulation is being addressed in several countries 14
Changes to the regulation of hedge funds are a necessary precondition for
their wider take up 14
The UK's FSA has recently released a set of proposals concerning the
regulation of onshore hedge funds and has invited industry feedback 15
France and Spain are examining the regulatory regime covering hedge funds 15
Germany put the regulation of hedge funds on the agenda in 2007 and has
introduced its own draft law 15
The Italian hedge fund market is exclusively for institutions and HNW at the
moment, but the industry is pushing for lower minimum thresholds 16
Denmark introduced an onshore hedge fund industry in 2005 17
Norway has planned to introduce the regulation of hedge funds for some time
and has recently been rocked by public authority losses as a result of hedge
fund investments 17
Belgium has a restrictive regime 17
Sweden was one of the first countries in Europe to introduce a liberalized
regime for onshore hedge funds 17
There have also been legislative initiatives at the European level that
impact on the hedge fund market 18
Hedge funds in Europe are looking to a voluntary code 18
Funds of hedge funds will drive growth in onshore hedge funds 19
Demand for funds of hedge funds will outstrip demand for single hedge funds
19
Onshore hedge funds in Europe will grow by nearly 25% compounded annually to
2012 21
Market Context 23
The European hedge fund market is focused on institutional investors 23
Institutional participation in the hedge fund market is now entrenched 23
Asset managers must address institutional clients' demand for greater
transparency 24
Mass market clients will become an increasingly important segment,
especially in Germany 24
Retail investors can expect to see many new propositions as providers expand
their funds of hedge funds ranges 25
Adverse economic conditions make for a more challenging marketing
environment 27
A severe economic downturn in Europe is widely anticipated 27
Investors who remember the last downturn will be more cautious 28
Negative media coverage is likely to deter investors 28
Asset managers must demonstrate their expertise and stay close to their
clients 30
Customers and Distribution Dynamics 31
Reaching the mass market for hedge funds 31
Mass market investors are attracted to opportunities to diversify their risk
31
But they are wary of a product class that they do not understand 31
UK mass market investors are most concerned about risk 32
Regulatory barriers limit the growth of the French mass market 33
German advisors lack the expertise to effectively market hedge funds to mass
retail investors 33
Costs and competition are determining factors in Italy and Spain 33
Sustaining demand will depend on regular communications to investors 33
Overall, retail banks and IFA networks are the preferred distribution
channels for mass market investors 34
Direct distribution is increasingly popular in Germany, Italy and France 35
Fund supermarkets are gaining ground in the UK and Spain 36
Action points 36
French asset managers will need to focus on client education through retail
banks and their own sales teams 36
Retail banks will lead the distribution effort in Germany; but advisor
training will be critical 36
Italian retail banking networks offer the best channels for educating and
reassuring mass market clients 37
Spain's IFAs will need to encourage clients to diversify away from competing
alternative investments 37
UK retail banks and IFAs will need to educate potential clients, pending
enabling legislation 37
Reaching the high net worth market for hedge funds 38
HNW customers are driven by the search for diversification 38
Potential investors are most likely to be put off by lack of product
knowledge 38
German providers need to invest most in HNW client education, while cost and
liquidity issues are crucial in Italy and Spain, respectively 39
Insufficient promotion deters investors in the UK and growth among French
clients is deterred by tax/regulatory issues 39
Current economic conditions call for heightened promotion and investor
advisories to sustain HNW demand 40
In general, European asset managers prefer to reach HNW investors through
direct sales, retail banks and IFAs 40
Italian and UK asset managers opt for distribution through retail banks 41
Spanish providers prefer IFAs and private banks 41
Action points 42
French asset managers must reinforce their internal sales forces to address
the needs of wealthy clients 42
German providers need to deliver client education and investment information
through wealth management partners 43
Retail banks distributing on behalf of Italian asset managers must focus on
risk, protection and cost 43
IFAs and private banks provide a channel for reaching Spain's wealthy 43
UK asset managers will need to focus on getting it right internally and
leveraging retail bank distribution 43
Reaching the institutional market for hedge funds 43
Institutional clients are after portfolio diversification 43
Product knowledge, costs and liquidity are the key concerns for would-be
institutional investors 44
An enhanced information and portfolio review service will help to sustain
confidence among institutional investors 45
Asset managers are likely to rely on direct sales and wealth managers to
reach potential institutional clients 46
French providers are especially keen to eliminate intermediaries 47
But German and Italian asset managers are giving greater consideration to
investment consultants 47
Action points 48
Direct efforts on the part of French asset managers must focus on investor
communication 48
Increasingly, fund managers in Germany will need to court and convince
investment consultants 48
Likewise, in Italy, the focus will be shifted to intermediaries 48
Spanish asset managers will maintain their focus on educating clients
through internal sales teams, but will also rely increasingly on wealth
managers for distribution 48
UK providers must enhance information and service delivered through internal
teams and wealth managers 49
Competitors 50
Asset managers rate Allianz, Deutsche Bank, Morgan Stanley, Man Group and
Barclays among the leading hedge fund providers. 50
Allianz is the leading institution for building hedge funds in France 50
Deutsche Bank is the most highly regarded hedge fund manager in Germany 51
Morgan Stanley tops the list of hedge fund managers in Italy 52
Spanish asset managers believe that MAN Group is the best at building hedge
funds 53
Barclays is the best UK hedge fund provider 54
APPENDIX 55
Data 55
Definitions 74
Arbitrage 74
CAGR 74
Derivative 74
Fund of hedge funds 74
Fund supermarket 74
Hedge fund 74
HNW 74
IFA 74
Liquid assets 74
Mass affluent 75
OEICs 75
Selling short 75
Ultra HNW 75
Unit trusts 75
Methodology 75
Bibliography 76
Further reading 76
Ask the analyst 77
Datamonitor consulting 77
Disclaimer 77
List of Tables 
Table 1: Regulation of onshore hedge funds 7
Table 2: Onshore hedge fund AUM, 2007-2012f 22
Table 3: Number of intermediaries, 2007 30
Table 4: The growth of onshore hedge funds and mutual funds 55
Table 5: To what extent do you agree with the following statement:
'Regulatory changes aimed at improving transparency of valuations are key to
increasing mass market investment in hedge funds.' 55
Table 6: To what extent do you agree with the following statement: 'Over the
next year, demand for funds of hedge funds will remain strong, although
there will be reduced demand for single hedge funds.' 56
Table 7: Which is your biggest customer group for hedge funds today?
2007 & 2008 56
Table 8: Which will be your biggest customer group for hedge funds in three
years time? 57
Table 9: To what extent do you agree with the following statement: 'Hedge
fund managers will increase the number offerings for the retail market in
2008.' 57
Table 10: To what extent do you agree with the following statement: 'There
is likely to be a significant economic downturn in Europe in 2008.' 58
Table 11: To what extent do you agree with the following statement:
'Investors will be more cautious about investing over the next 2 years
because of current conditions and their memory of the 2000-2003 downturn.'
59
Table 12: In your opinion, what is the most important reason why mass market
investors are demanding hedge funds today? 60
Table 13: What do you think will be the major barrier to wider take-up of
hedge funds by mass market investors over the next year? 61
Table 14: Facing the possibility of a global economic slowdown, which of the
following strategies will be most effective in sustaining demand for
alternative investments among your mass market clients or the wealth
managers who advise them? 62
Table 15: What do you think is the best way for hedge funds to be
distributed to mass market investors? 63
Table 16: In your opinion, what is the most important reason why high net
worth investors are demanding hedge funds today? 63
Table 17: What do you think will be the major barrier to wider take-up of
hedge funds by high net worth investors over the next year? 64
Table 18: Facing the possibility of a global economic slowdown, which of the
following strategies will be most effective in sustaining demand for
alternative investments among your high net worth clients or the wealth
managers who advise them? 65
Table 19: What do you think is the best way for hedge funds to be
distributed to high net worth investors? 66
Table 20: In your opinion, what is the most important reason why
institutional investors are demanding hedge funds today? 66
Table 21: What do you think will be the major barrier to wider take-up of
hedge funds by institutional investors over the next year? 67
Table 22: Facing the possibility of a global economic slowdown, which of the
following strategies will be most effective in sustaining demand for
alternative investments among your institutional clients or the wealth
managers who advise them? 68
Table 23: What do you think is the best way for hedge funds to be
distributed to institutional investors? 69
Table 24: In France, who are the best asset managers at building hedge
funds? 69
Table 25: In Germany, who are the best asset managers at building hedge
funds? 70
Table 26: In Italy, who are the best asset managers at building hedge funds?
71
Table 27: In Spain, who are the best asset managers at building hedge funds?
72
Table 28: In the UK, who are the best asset managers at building hedge
funds? 73
List of Figures 
Figure 1: Onshore hedge fund CAGR is outstripping onshore mutual fund CAGR
in Europe 11
Figure 2: The major barrier to wider take up of hedge funds by mass market
investors is a lack of understanding of the product 13
Figure 3: Asset managers see regulatory changes as key to increasing mass
market investment in hedge funds 14
Figure 4: Demand for funds of hedge funds will remain strong, although there
will be reduced demand for single hedge funds 20
Figure 5: The onshore hedge fund market is set to grow strongly 22
Figure 6: Institutional investors now dominate the European hedge fund
market 23
Figure 7: Over the next three years, there will be notable growth in mass
market demand 25
Figure 8: More retail hedge fund products will be offered in 2008 26
Figure 9: Economic conditions in Europe are expected to decline in 2008 27
Figure 10: Current conditions and the memory of the last major economic
slowdown will affect investor behavior 28
Figure 11: Potential hedge fund investors will be cowed by reports of
financial instability 29
Figure 12: Hedge funds offer mass market investors the opportunity to
diversify risk 31
Figure 13: Lack of understanding is limiting mass market demand for hedge
funds 32
Figure 14: Asset managers need to emphasize the benefits of hedge fund
investing and keep clients abreast of their investment strategies 34
Figure 15: Mass market investors are best targeted through retail banks and
IFAs 35
Figure 16: Risk diversification is the primary driver of demand among HNW
investors 38
Figure 17: For would-be HNW investors, insufficient product understanding
proves to be a deterrent 39
Figure 18: Fund managers need to work harder to promote their offerings and
investment strategies 40
Figure 19: Preferred distribution channels for HNWs vary among countries 42
Figure 20: Institutional investors are using hedge funds for risk
diversification 44
Figure 21: Regulatory/tax barriers are an issue for French and Spanish
institutional investors 45
Figure 22: Providers and distributors would do well to keep institutional
clients informed about investment strategies and portfolio performance 46
Figure 23: Providers in most states opt for distribution through direct
sales or wealth managers 47
Figure 24: Allianz and Societe Generale emerge as the best hedge fund
managers in France 50
Figure 25: Deutsche Bank leads the market by a significant margin in Germany
51
Figure 26: Morgan Stanley leads the market in Italy, followed by Goldman
Sachs 52
Figure 27: MAN Group ranks highest in Spain, but is closely followed by UBS
53
Figure 28: Barclays leads the UK market 54

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INDUSTRY:  Financial Services - Investment Opinion
SUBJECT:  ANL