Hedge Funds in Europe 2006

Published by: Datamonitor

Published: Sep. 25, 2006 - 82 Pages

Table of Contents

EXECUTIVE SUMMARY

Market context

Regulation

Distribution

Future market growth

INTRODUCTION

What is this report about?

Who is the target reader?

How to use this report

CHAPTER 1 MARKET CONTEXT

Key findings

The hedge fund market in Europe is healthy, although assets have not seen the high growth levels of 2005

The UK and France are the largest markets for hedge fund investment in Europe

The UK continues to dominate the European hedge fund market

France is rapidly developing its hedge fund market

Italy significantly increased its hedge fund investments in 2005

The German market saw slower growth than expected in 2005

The Spanish hedge fund market may have grown up to EUR12.0bn in 2005

The UK dominates hedge fund management in Europe

European equity is the largest investment class for hedge funds managed in Europe

Large hedge fund competitors experienced a slow year in 2005

Larger funds have seen few large-scale fund launches, leading to slow growth

Individual hedge fund competitors can be rapidly undermined by poor performance

Man Group has overtaken GLG Partners as the largest competitor in the European hedge fund market

GLG Partners experienced a turbulent year in 2005

Brevan Howard has retained its place in the top five management firms of 2005, despite assets declining by 12%

European hedge funds are still struggling to compete with their siblings across the Atlantic

High Net Worth customers have regained their place as the most important customer segment for hedge funds in Europe

Institutions and HNW individuals are the key customer groups for hedge funds

Hedge funds are among the most highly demanded alternative investment among high net worth clients today

The UK has the highest demand for hedge funds among wealthy clients

Data

CHAPTER 2 REGULATION

Introduction

Key Findings

Europe is moving towards a pan-national set of investment regulations, but progress is slow

The EU has initially rejected the inclusion of hedge funds in UCITS

The MiFID has the potential for significant impact on hedge fund managers across Europe

Compliance with the EU Capital Requirements Directive could disadvantage European firms against their global competitors

The European Commission has appointed a group to discuss the possibility of a single European market for investment funds

Hedge funds face increasingly strict tax regulations across Europe

While regulations are changing, there continues to be significant differences in the regulation of hedge funds between EU member states

France is at the forefront of regulatory innovation

The German hedge fund market is still restricted by regulation

Italian hedge fund investment is closely but liberally regulated

Spain has seen dramatic growth after the introduction of hedge fund regulation in 2005

The UK regulator remains cautious

The US has also introduced some key legislation affecting UK hedge fund managers

Guernsey is developing into a popular location

CHAPTER 3 DISTRIBUTION

Introduction

Key findings

Financial advisers are seen as the best means of distributing hedge funds to mass market customers in Europe

UK asset managers are showing a greater preference for retail banks

IFAs are a strong channel for hedge funds in Spain and Italy, but Germany is lagging behind

Private banks are the key distributors of hedge funds to wealthy customers

Distribution methods to the institutional customer market varies between countries

Fund managers in the UK and Germany prefer to sell directly to institutional clients

Investment consultants are most popular in Spain

Private banks have increased in popularity as a distribution channel to institutional clients in France

Data

CHAPTER 4 THE FUTURE FOR HEDGE FUNDS

Introduction

Key findings

Regulatory issues are the key challenge facing institutional hedge fund sales in Europe going forward

Asset managers in Spain are particularly concerned about regulatory barriers to institutional growth

For individual investors, the key barrier for the future growth of hedge fund sales is the complexity of the product

Hedge fund markets are expected to grow rapidly, and in 3 years the institutional market will be the biggest customer base for hedge funds

Most demand for hedge funds will come from the institutional client base

The institutional client base will therefore be the biggest for hedge funds three years from now

But demand across all customer bases will be strong

Over 90% of wealth managers see positive demand for hedge funds from the mass market customer base

Over a third of European asset managers believe that HNW investment in hedge funds will grow by a small proportion

More than half of European asset managers expect strong growth in institutional investment in hedge funds

Data

APPENDIX

Research methodology

Datamonitor's European Asset Management Market Leaders Survey 2006 methodology

Market size estimates

Definitions

Arbitrage

CAGR

Derivative

Funds-of-hedge funds

Fund supermarket

Hedge fund

HNW

IFA

Liquid assets

Mass affluent

OEICs

Selling short

Ultra HNW

Unit trusts

Further reading

Savings and Investments SPP

Interactive Databases

Reports

Briefs

SPP writing team

List of Tables

Table 1: Top 5 hedge fund management firms in Italy, Q1 2006

Table 2: Top 5 hedge fund management firms in Europe, 2004-2005

Table 3: European hedge fund assets held by investor, by country, estimated for 2005

Table 4: European hedge funds by location of manager, as of March 2006

Table 5: New European hedge fund assets by investment strategy, H1 2006

Table 6: New European hedge fund assets by investment strategy, 2005 (total)

Table 7: Top 5 hedge fund management firms in Europe, 2004-2005

Table 8: Which is your biggest customer group for hedge funds?

Table 9: 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? (Top 3 choices, 94 panelists)

Table 10: Proportion of respondents 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.

Table 11: What do you think is the best way for the following alternative investments to be distributed to mass market customers?

Table 12: What do you think is the best way for hedge funds to be distributed to high net worth customers?

Table 13: What do you think is the best way for hedge funds to be distributed to institutional investors?

Table 14: Thinking of institutional investors, what do you think will be the major barriers to wider take-up of hedge funds in the next three years?

Table 15: 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?

Table 16: Thinking of mass market customers, what do you think will be the major barriers to wider take-up of hedge funds in the next three years?

Table 17: From which customer base will the most increase in demand for hedge funds come in 3 year's time?

Table 18: In 3 years, which will be your biggest customer group for hedge funds?

Table 19: Over the next 3 years, how do you think demand for hedge fund investments will change among institutional investors?

Table 20: Over the next 3 years, how do you think demand for hedge fund investments will change among high net worth investors?

Table 21: Over the next three years, how do you think demand for hedge fund investments will change among mass market investors?

List of Figures

Figure 1: The UK is the largest European market for hedge fund assets held by investors, 2005e

Figure 2: The UK dominates the market for hedge fund management in Europe, H1 2006

Figure 3: European equity remains the most important investment class for European hedge fund managers In 2006

Figure 4: Man Group overtook GLG partners to become the largest hedge fund management firm in Europe in 2005

Figure 5: HNW clients are seen by European asset managers to be the key customer segment in 2006

Figure 6: Hedge funds are one of the most popular products with HNW clients in 2006

Figure 7: Hedge funds are most popular in the UK

Figure 8: Financial advisors are the preferred method of distributing hedge funds to mass market investors across Europe

Figure 9: Private banks and financial advisors are the favored channels for distributing hedge funds to wealthy investors

Figure 10: Direct sales are the most popular option in most European countries for distributing hedge funds to institutional investors

Figure 11: Regulatory difficulties will remain a barrier to the growth of institutional hedge fund sales in Europe

Figure 12: Regulatory difficulties are the principal barrier to institutional hedge fund investment in Spain

Figure 13: Both mass market and HNW sales are likely to suffer from a lack of customer understanding of hedge fund products

Figure 14: Over half of European asset managers believe institutional demand will grow most over the next three years

Figure 15: France will see the highest level of institutional growth, while Spain will see the lowest

Figure 16: Most European asset managers think the institutional client base will be their biggest customer group in three years time

Figure 17: The majority of European asset managers predict an increase in mass market demand for hedge funds of between 0% and 5% over the next 3 years

Figure 18: Most asset managers predict strong annual growth in the HNW client base over the next 3 years

Figure 19: Over 90% of asset managers predict annual growth in demand from the institutional client base over the next 3 years

Abstract

• Provides detailed information on the hedge fund markets in France, Italy, Spain, Germany, and the UK
• Sizes the hedge fund market by country by assets under management, and the top European competitors and investment strategies
• Gives comprehensive analysis of regulatory and distributory developments occurring the European hedge fund industry
• Uses primary data from Datamonitor's European Alternative Investment Survey 2005 covering 94 asset managers in Europe.

• Obtain a unique picture of the hedge fund industry in Europe based on the views of Europe's premier asset managers.
• Understand the complex regulatory issues impacting the industry, and how these will affect the development of domestic and pan-European markets.
• Ascertain the strategic options for developing a hedge fund offering, including information on distribution, target markets, and competition.

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