HedgeWorld Markets USA Inc. has introduced the first hedge fund supermarket, a product it expects will couple hedge fund managers with banks and other financial institutions.
Johann Wong, the company’s vice chairman and chief executive officer, said the platform might prove particularly appealing to domestic private banks that have been hesitant to offer alternative investments. During a test run outside the United States last month, 3,000 accredited investors, both institutional and individual, applied for membership in HedgeWorld Marketplace and more than 100 hedge funds were selected for distribution.
HedgeWorld Marketplace enables registered investors and advisers to research, invest in, and monitor hedge funds and funds of hedge funds, the company said last week. “Historically, the European and the Swiss private banks have been active allocators in hedge funds, but thus far it has been less in the States,” Mr. Wong said.
The product lets a financial services company offer hedge funds to its institutional and high-net-worth customers, Mr. Wong said. HedgeWorld, which is based in White Plains, N.Y., can work with a private bank to design products or can give it third-party funds, he said, and the company wants to help banks decide whether to create their own products or help them select from the growing roster of hedge funds.
“We want to help private banks with that process to determine what is their best entry into alternative investments,” he said.
Accredited investors, investment advisers, and financial planners and qualified institutions and hedge funds of funds must show an understanding of hedge funds and the marketplace before they can join the platform. It offers single-manager hedge funds from established providers, as well as access to new and emerging managers and funds of funds.
An executive who distributes alternative investment products to banks said most of the top wealth managers in the United States are already selling hedge funds. Smaller banks, however, lack the infrastructure and expertise to be selling hedge funds, he said.
“Firms need to have someone who understands, on a risk-adjusted basis, which products are good and which products aren’t. How can that be determined from a database?” he asked.
The executive, who asked not to be named, said that the best hedge fund managers do not want to be listed on a platform. “They don’t want to share fees,” he said. “They want to control capacity. They don’t want to be a client of an organization. I am a little wary. The jury is out as to whether this can be successful to a sophisticated audience.”
This person said new alternative investment products and services have had a difficult time getting established this year and that this might hamper HedgeWorld. Since hedge funds surged to $792 billion of assets at Jan. 1, returns have been flat. After average monthly returns of 16% a year ago, the average hedge fund rose 0.85% this August and is up 0.82% for the year, according to the Credit Suisse First Boston Tremont Index.
Mr. Wong said he does not think that a recent shakeout in the alternative investment market will hurt the HedgeWorld platform. “This is a time in the market to separate the weak products from the strong products, and that is what our platform wants to do,” he said. “This is a healthy process.”
