Hedge Funds in Europe 2007

The European Hedge fund market is going through a period of exponential growth. This report draws on Datamonitor's European Asset Management Market Leaders survey to deliver insights into the development of this market.



Report Highlights
The global hedge fund market has grown by a significant amount in recent years, with assets in global hedge funds surging to USD1.5trn, as of March 2006. The popularity of event-driven funds has played a significant part in shaping the formation of the top European hedge funds, as well as being a major contributor to overall hedge fund growth in the European market. Despite the fear that hedge funds are overpriced propositions in the investment market, the strength of the sector continues to grow in line with burgeoning interest from the institutional sector and even a hint of demand from the more belligerent proportion of the mass market customer base.


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Catalyst 1
Summary 1
Methodology 1
Executive Summary 2
Market Context 2
Competitor Dynamics 2
Distribution Dynamics 2
Catalyst 1 3
Summary 1 3
Methodology 1 3
Executive Summary 2 3
Market Context 2 3
Competitor Dynamics 2 3
Distribution Dynamics 2 3
Market context 9 3
Introduction 9 3
The global hedge fund market has seen exponential growth in recent years and Europe has been responsible for a significant proportion of that growth 9 3
The European hedge fund market has been driven by a substantial number of fund launches 11 3
Institutional investors have regained their place as the most important customer group for hedge funds in Europe 13 3
There has been a considerable amount of EU-wide hedge fund regulation in recent years 18 3
The EU is divided over the issue of hedge fund regulation 20 3
The European hedge fund market is expected to grow at a significant rate 29 3
The hedge fund market is expected to grow over the next three years, with institutions likely to retain their status as the main customer group 33 3
Demand for hedge funds across all customer bases is likely to be strong 35 3
Data 40 3
COMPETITOR DYNAMICS 45 3
Goldman Sachs are perceived as the leading institution in building hedge funds across Europe 45 3
Data 49 3
DISTRIBUTION DYNAMICS 50 3
Retail banks are the primary means of distributing hedge funds to mass market investors in Europe 50 3
IFAs are seen as the key distributors of hedge funds to high net worth clients across Europe 52 3
Direct sales forces are the best way to distribute hedge funds to institutions across Europe 56 3
Data 58 3
APPENDIX 60 3
Definitions 60 3
Methodology 61 4
Further reading 62 4
Ask the analyst 62 4
Datamonitor consulting 62 4
Disclaimer 62 4
Table of figures 5
Figure 1: Institutional clients are regarded as the most important client segment for hedge funds in 2007 14 5
Figure 2: Hedge funds are the most popular alternative investment, according to EU asset managers 15 5
Figure 3: Hedge funds are most popular among wealthy clients in Italy and the UK 16 5
Figure 4: Regulatory difficulties are expected to be the major barrier to wider take-up of hedge funds among institutional clients over the next three years 30 5
Figure 5: Regulatory difficulties were cited as the major barrier to wider take-up of hedge fund investments in the Spanish market 31 5
Figure 6: Both high net worth and mass market sales are expected to suffer lack of investor understanding of hedge fund products 32 5
Figure 7: The majority of EU asset managers believe the institutional market will see the most increase in demand for hedge funds over the next three years 34 5
Figure 8: Nearly half of all EU asset managers believe institutions will constitute their biggest client group in the next three years 35 5
Figure 9: Over a third of EU asset managers believe demand for hedge funds from the mass market will increase by somewhere between 5-10% over the next three years 36 5
Figure 10: Most EU asset managers believe there will be strong growth in demand for hedge funds among high net worth clients 37 5
Figure 11: Over two-thirds of EU asset managers predict strong growth in demand for hedge funds from institutional investors over the next three years 39 5
Figure 12: Goldman Sachs are the leading hedge fund management firm according to EU asset managers 45 5
Figure 13: Retail banks are considered the best way to distribute hedge funds to the mass market across Europe 51 5
Figure 14: Asset managers in the UK and Spain believe IFAs are the most appropriate distribution channel for mass market investors 52 5
Figure 15: IFAs are the best means of distributing hedge funds to wealthy investors across Europe 54 5
Figure 16: Opinion varies among individual countries as to the best way of distributing hedge funds to wealthy clients 56 6
Figure 17: Direct sales are the best means of distributing hedge funds to institutional clients across Europe 57 6
Table of tables 7
Table 1: New European hedge fund launches in 2006, segmented by number and strategy 12 7
Table 2: Top ten new European hedge funds in 2006, segmented by assets and strategy 13 7
Table 3: Which is your biggest customer group for hedge funds? 40 7
Table 4: What type of alternative investment fund is most in demand by your wealthy clients or the wealth managers who offer your funds to their clients? (Choose up to three options) 40 7
Table 5: Number of responses from EU asset managers who believe hedge funds are one of the three most in demand alternative investment fund types among wealthy clients or wealth managers who offer funds to their clients, by country 41 7
Table 6: Thinking of institutional investors, what do you think will be the major barriers to wider take-up of hedge funds over the next three years? 41 7
Table 7: Thinking of high net worth customers, what do you think will be the major barriers to wider take-up of hedge funds in the next three years? 42 7
Table 8: Thinking of mass market customers, what do you think will be the major barriers to wider take-up of hedge funds over the next three years? 42 7
Table 9: From which customer base will the most increase in demand for hedge funds come in three years' time? 43 7
Table 10: In three years, which will be your biggest customer group for hedge funds? 43 7
Table 11: Over the next three years, how do you think demand for hedge fund investments will change among mass market investors? 43 7
Table 12: Over the next three years, how do you think demand for hedge fund investments will change among high net worth investors? 44 7
Table 13: Over the next three years, how do you think demand for hedge fund investments will change among institutional investors? 44 7
Table 14: Who are the three best asset managers at building hedge funds? 49 7
Table 15: What do you think is the best way for hedge fund investments to be distributed to mass market investors? 58 7
Table 16: What do you think is the best way for hedge fund investments to be distributed to high net worth investors? 58 7
Table 17: What do you think is the best way for hedge fund investments to be distributed to institutional investors? 59 8
Market context 9
Introduction 9
The global hedge fund market has seen exponential growth in recent years and Europe has been responsible for a significant proportion of that growth 9
The UK continues to dominate the European hedge fund market 9
London has now taken the crown of global hedge fund hotspot from New York 9
France has one of the leading asset management markets in Europe and was one of the first countries to establish a legal framework for hedge funds 10
The Italian hedge fund sector has grown at an impressive pace in 2006 10
The German hedge fund market is growing but has achieved less than impressive returns 11
Hedge funds in Spain have been subjected to new regulation and sales are estimated to have reached around EUR12bn in 2005 11
The European hedge fund market has been driven by a substantial number of fund launches 11
Despite fairly low returns, European hedge fund launches have hit a record high 11
Event-driven funds have doubled in popularity, but European equity continues to be the largest investment class for hedge funds managed in Europe 11
Event-driven hedge funds lead the way in the list of top ten new European hedge funds 12
Institutional investors have regained their place as the most important customer group for hedge funds in Europe 13
Institutional and high net worth individuals are key customer groups in the hedge fund market 13
Hedge funds are the most popular alternative investment among wealthy clients 14
The UK and Italy have the highest demand for hedge funds from wealthy clients 15
Many hedge funds have been accused of charging high fees without the return 16
Despite these less than impressive returns, hedge fund assets continue to experience significant growth 17
The market for hedge fund administrators is growing in line with increased demands from investors 17
The hedge fund administration market is one characterized by significant opportunities for new entrants 18
Risk management is an area that requires attention and improvement 18
There has been a considerable amount of EU-wide hedge fund regulation in recent years 18
The EU is divided over the issue of hedge fund regulation 20
The MiFID has the potential for significant impact on hedge fund managers across Europe 20
Compliance with the EU Capital Requirements Directive could place European firms at a disadvantage against their global competitors 21
The high-profile nature of hedge funds is prompting some EU governments to consider new legislation 22
The EU has enforced a Transparency Obligations Directive to help increase transparency 22
But others, such as the EU internal market & services commissioner, have rejected calls for more rules 23
The MTS eurozone government bond trading platform is coming under increasing pressure to admit hedge funds 23
Germany has put hedge fund transparency at the top of its agenda in the latest round of G7 talks 23
Spain has recently introduced hedge fund regulation into the domestic market 24
France is at the forefront of regulatory innovation 25
The Italian hedge fund market has been historically restricted somewhat by regulation 26
But recent developments indicate that Italy may be moving towards a more liberalized market 27
The UK regulator has tried to remain positive in the face of caution 27
In spite of the cautious approach, there are plans to open up hedge funds to small investors 28
The European hedge fund market is expected to grow at a significant rate 29
Although regulation will continue to be an issue for the institutional customer base 29
Asset managers in Spain are particularly concerned about the effect of regulation and lack of product understanding on institutional growth 30
For individual investors the main obstruction to future growth is product complexity across Europe 31
The hedge fund market is expected to grow over the next three years, with institutions likely to retain their status as the main customer group 33
Institutional clients are likely to demand hedge funds the most in three years' time 33
The institutional client base will also be the biggest for hedge funds in three years 34
Demand for hedge funds across all customer bases is likely to be strong 35
Approximately 90% of asset managers believe demand for hedge funds will increase by some degree among mass market investors over the next three years 35
Most EU asset managers believe that demand for hedge funds among high net worth investors is likely to grow by a significant amount 36
Over two-thirds of EU asset managers believe the institutional client base will exhibit strong growth in demand for hedge funds over the next three years 38
Data 40
COMPETITOR DYNAMICS 45
Goldman Sachs are perceived as the leading institution in building hedge funds across Europe 45
Goldman Sachs has created a dedicated alternative investments group within their asset management arm 46
Allianz Hedge Fund Partners have joined forces with the AGF Alternative Asset Management 46
HAIL is HSBC's dedicated fund of hedge funds business 47
Man Investments is the asset management division of Man Group 47
AXA offer hedge funds through an alternative management team 48
Data 49
DISTRIBUTION DYNAMICS 50
Retail banks are the primary means of distributing hedge funds to mass market investors in Europe 50
But asset managers in Spain and the UK prefer IFAs 51
While fund supermarkets and direct sales are unpopular means of distribution among the mass market 51
IFAs are seen as the key distributors of hedge funds to high net worth clients across Europe 52
On a country-specific scale, opinion as to the best distribution method is mixed 53
Direct sales forces are the best way to distribute hedge funds to institutions across Europe 55
In France, investment consultants and direct sales are equally popular methods 56
Data 57
APPENDIX 59
Definitions 59
Arbitrage 59
CAGR 59
Derivative 59
Funds-of-hedge funds 59
Fund supermarket 59
Hedge fund 59
HNW 59
IFA 59
Liquid assets 60
Mass affluent 60
OEICs 60
Selling short 60
Ultra HNW 60
Unit trusts 60
Methodology 60
Further reading 61
Ask the analyst 61
Datamonitor consulting 61
Disclaimer 61

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Table 1: New European hedge fund launches in 2006, segmented by number and strategy 12
Table 2: Top ten new European hedge funds in 2006, segmented by assets and strategy 13
Table 3: Which is your biggest customer group for hedge funds? 40
Table 4: What type of alternative investment fund is most in demand by your wealthy clients or the wealth managers who offer your funds to their clients? (Choose up to three options) 40
Table 5: Number of responses from EU asset managers who believe hedge funds are one of the three most in demand alternative investment fund types among wealthy clients or wealth managers who offer funds to their clients, by country 41
Table 6: Thinking of institutional investors, what do you think will be the major barriers to wider take-up of hedge funds over the next three years? 41
Table 7: Thinking of high net worth customers, what do you think will be the major barriers to wider take-up of hedge funds in the next three years? 42
Table 8: Thinking of mass market customers, what do you think will be the major barriers to wider take-up of hedge funds over the next three years? 42
Table 9: From which customer base will the most increase in demand for hedge funds come in three years' time? 43
Table 10: In three years, which will be your biggest customer group for hedge funds? 43
Table 11: Over the next three years, how do you think demand for hedge fund investments will change among mass market investors? 43
Table 12: Over the next three years, how do you think demand for hedge fund investments will change among high net worth investors? 44
Table 13: Over the next three years, how do you think demand for hedge fund investments will change among institutional investors? 44
Table 14: Who are the three best asset managers at building hedge funds? 49
Table 15: What do you think is the best way for hedge fund investments to be distributed to mass market investors? 57
Table 16: What do you think is the best way for hedge fund investments to be distributed to high net worth investors? 57
Table 17: What do you think is the best way for hedge fund investments to be distributed to institutional investors? 58


Figure 1: Institutional clients are regarded as the most important client segment for hedge funds in 2007 14
Figure 2: Hedge funds are the most popular alternative investment, according to EU asset managers 15
Figure 3: Hedge funds are most popular among wealthy clients in Italy and the UK 16
Figure 4: Regulatory difficulties are expected to be the major barrier to wider take-up of hedge funds among institutional clients over the next three years 30
Figure 5: Regulatory difficulties were cited as the major barrier to wider take-up of hedge fund investments in the Spanish market 31
Figure 6: Both high net worth and mass market sales are expected to suffer lack of investor understanding of hedge fund products 32
Figure 7: The majority of EU asset managers believe the institutional market will see the most increase in demand for hedge funds over the next three years 34
Figure 8: Nearly half of all EU asset managers believe institutions will constitute their biggest client group in the next three years 35
Figure 9: Over a third of EU asset managers believe demand for hedge funds from the mass market will increase by somewhere between 5-10% over the next three years 36
Figure 10: Most EU asset managers believe there will be strong growth in demand for hedge funds among high net worth clients 37
Figure 11: Over two-thirds of EU asset managers predict strong growth in demand for hedge funds from institutional investors over the next three years 39
Figure 12: Goldman Sachs are the leading hedge fund management firm according to EU asset managers 45
Figure 13: Retail banks are considered the best way to distribute hedge funds to the mass market across Europe 50
Figure 14: Asset managers in the UK and Spain believe IFAs are the most appropriate distribution channel for mass market investors 52
Figure 15: IFAs are the best means of distributing hedge funds to wealthy investors across Europe 53
Figure 16: Opinion varies among individual countries as to the best way of distributing hedge funds to wealthy clients 55
Figure 17: Direct sales are the best means of distributing hedge funds to institutional clients across Europe 56

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