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Hedge Funds Feel Heat from Low-Cost Alternatives
April 2018

Hedge funds are adjusting to a fundamental industry shift splitting the sector between cheap, scalable products and high-fee alpha generating vehicles, according to a new report.

The rise of products that replicate hedge fund strategies is adding new pressures to the sector, according to the report from the Alternative Investment Management Association (AIMA) and Aberdeen Standard Investments, based on interviews with 25 hedge fund industry leaders.

As a result of these shifts, several hedge fund managers are predicting significant flows heading to less costly alts products.

For many hedge fund managers, offering lower cost products still presents a major challenge, says Stuart Blair, director of research at Canterbury Consulting.

“That’s cannibalizing their own business,” he says. “People have been talking about hedge fund fees coming down a lot since 2008 and the Great Financial Crisis. They have come down but 1.5 and 20 is still ten times more expensive than your factor-based ETF.”

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