In 2012 hedge fund gathered $34.4 billion (source HFR) in net new assets which is just 12% of the $264.98 billion gathered by ETFs/ETPs. Year to date through Q3 2013 ETFs/ETPs have gathered $202.16 billion in net new assets while hedge funds have only gathered $53.22 billion in net new assets (source HFR). Assets invested in ETFs/ETPs have been growing at 29.6% compounded annual growth rate over the past 10 years which is must faster than the growth rate in assets invested in hedge funds.
Most new money goes into the largest hedge funds those that have assets of at least $50 million and typically larger. The fees charged by the majority of hedge funds are 2% of assets and 20% of the profits. The performance of many hedge fund strategies and many hedge funds has not been very good over the past few years. At the end of October 2013 the average hedge fund has made 5 per cent on its investments so far this year, according to Eurekahedge, compared with a return of 16 per cent for the MSCI world index and 24 per cent for the S&P 500. With the positive performance of equity markets many investors have been happy with index returns. This situation has benefited ETFs/ETPs which offer an enormous tool box of index exposures to various markets and asset classes including hedge fund indices and active ETFs. The asset weighted annual cost for ETFs/ETPs is 33 basis points or one third of a percent (source ETFGI global ETF and ETP insight report for Q3 2013).
With approx. 10,000 hedge funds we see that the average size of hedge funds is significantly smaller than the average size of ETFs/ETPs with approx. 5,000 products. Hedge funds like ETFs/ETPs have seen a significant number of new product launches and also product closures.
We expect the assets in ETFs/ETPs to continue to grow at a faster rate than hedge funds.
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