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Regulation slows push for alternatives, says Cerulli

Regulation is slowing the push for alternative investments, according to research released by Cerulli Associates.

"Alternative investments and other non-traditional asset classes are slowly becoming a larger part of the investment landscape," says Pamela DeBolt, associate director at Cerulli. "This acceptance is playing out in several areas: through increased allocations in institutional channels such as defined benefit pension plans and endowments, expectations for greater use among financial advisors, interest within defined contribution plans, product development agendas, and greater importance for asset managers."
 
Cerulli's September 2014 issue of The Cerulli Edge – US Edition examines product development within hedge funds and alternative investments, investment opportunities within global infrastructure funds, and analyses the client demand for environmental, social, and governance strategies.
 
"Demand from institutional clients, distributors, platforms, and financial advisors spurs interest in alternatives," adds Michele Guiditta, associate director at Cerulli. "The percentage of managers that rate revenue potential as a driver of interest in alternative assets dropped to 83 per cent in 2014 from 93 per cent in 2013. This decline can partially be attributed to heightened regulation in increasing barriers to entry."
 
Regulatory requirements have increased the cost of running alternative funds, with additional resources needed for operations, compliance, reporting, and risk management.
 
"Further regulation is one reason for slowing in the process of adoption," DeBolt says. "The time required for institutions to perform due diligence and make an allocation is lengthy.  Manager selection is a crucial component of alternative investments, and the due diligence process is time-consuming.”
 
Half of managers report that it takes between seven and 12 months to perform due diligence and make an allocation to a single hedge fund product. For 25 per cent of managers, it takes more than 12 months.

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