An expansion of hedged products into the retail market could cause Europe's hedge fund industry to 'lose its way' and suffer from diminished returns, according to a hedge fund expert.
Raffaele Jerusalmi, executive director of Borsa Italiana, told Borsa Italiana's conference in Milan in early June the performance of Europe's hedge funds could fall if restrictions imposed to protect retail consumers restricted the funds' investment universe.
Jerusalmi attributed the Europe-wide push towards retail distribution of hedge fund products to many ex- long-only European firms entering the hedge fund market, and trying to leverage their existing sales base to sell more product.
However, such a scenario could lead hedge funds into a parlous state, where product providers relied on inflows from investors for growth, rather than performance figures for growth in assets under management, added Jerusalmi.
'If the industry does not perform as expected hedge funds may turn out to be the latest whim of fashion,' he said. 'We have to make sure hedge funds do not turn out to be a temporary trend.'
Jerusalmi's comments represent a step further than many hedge fund industry commentators have taken in the past, because while some have questioned the value of opening the retail market to hedge fund providers, few have said that making funds available to retail investors could actually harm hedge funds themselves.
As well as in Italy, regulators in France and Ireland have recently made moves to make hedge funds accessible to their respective retail audience, reducing, or even eliminating minimum investments in fund of fund products.
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