Private Equity Investors Seek Alternative Fund Structures for Flexibility and Control

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Private Equity Investors Seek Alternative Fund Structures for Flexibility and Control

February 2019, Boston—The February 2019 issue of The Cerulli Edge―U.S. Monthly Product Trends
Edition analyzes mutual fund and exchange-traded fund (ETF) product trends as of January 2019. This
issue also includes special coverage on institutional investor vehicle use.

 

HIGHLIGHTS FROM THIS RESEARCH:

• As the private equity space grows, more investors are exploring alternative structures.
Benefits of these structures include obtaining lower fees, greater control over investments, more
customization, and greater transparency. One of the greatest benefits of alternative structures is
control and flexibility. With alternative structures, investors have more input on the timing of
their exit strategies.

• While mutual fund assets have not entirely bounced back from the volatility experienced in
December, mutual fund products did attract net inflows of $36.6 billion in January, the first time
since July 2018. Total ETF assets closed January 2019 just shy of $3.7 trillion, just less than the
peak experienced in September 2018. Curiously, net flows only totaled $2.2 billion, with investors
seeking out taxable bond products ($16.8 billion) while exiting U.S. equities (-$13.7 billion) and sector
equities (-$7.7 billion).

• Within the institutional space, the use of passive investments can vary depending on the
client type. For defined contribution (DC) retirement plan clients, collective investment trusts
(CITs) are a common investment vehicle choice. Cerulli’s survey of CIT providers reveals that 69%
of DC CIT assets under management (AUM) is managed passively. Health and hospital systems use
passive investments across their multiple assets pools, particularly in their DC plans and their
short-term investing/capital spending pools, where generating strong risk-adjusted returns is less
likely to be an investment objective when compared to endowments and foundation pools.

 

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