BlackRock Set to Dominate the Retail Hedge Fund Space

February 7, 2012

Despite all of its troubles over the last few years, hedge fund investing has still managed to capture the imagination of small investors, heretofore relegated to the sidelines due to the high cost of entry. But, as more investors have grown weary of the volatile spikes and dips of the markets, an increasing number of them are seeking better ways to diversify their portfolios to inoculate them from the simple win-lose movements of the market. Likewise, a growing number of mutual fund companies happily striving to accommodate them by introducing more hedge fund-like mutual funds.  Hedge fund/mutual fund powerhouse, BlackRock, is the latest entrant into this expanding mutual fund category.

The real drivers behind this movement have been financial advisors who have come under pressure from their clients to find ways to stabilize their portfolios while capturing returns on both sides of the market. Over the past couple of years, advisors and their clients have become much more attuned to the need to diversify into low or non-correlating assets that act as counterbalances severe changes in market direction. Smaller investors don’t have access to the high flying hedge fund managers and their intricate long/short strategies that, when things are working well for them, are designed to do just that.

In just the last three years, more than 300 mutual funds have been launched that base their investment objective on some combination of hedge-like strategies giving small investors, with as little as $1,000, the same opportunity as high net worth individuals with millions of dollars to invest. BlackRock is a relatively new entrant into the field, but it brings with it colossal clout and an impressive track record, in both hedge funds and mutual funds, that are certain to increase the legitimacy of this new fund category.

In October of 2011, BlackRock introduced three funds: An emerging markets long/short equity fund; a commodities strategies fund and a long/short credit opportunities fund.  While it has already proven itself as a dominant player in the alternative investment space with over $100 billion AUM, it has long sought to similarly dominate the mutual fund space. Its combined experience and track record in both spheres will make it a force to contend with, especially in the new realm of retail alternative investments.

 

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