Interest in hedge fund investing has cooled somewhat over the past two
years, but Schwab Institutional says its advisors have steadily steered
client money into its hedge fund offerings.
"Advisors have been consistently allocating assets despite reports of the demise of hedge funds," says Josh Kernan, alternative investment director with Charles Schwab & Co. "These are sophisticated enough advisors to understand the benefits these funds can bring."
It has been just over two years since Schwab Institutional launched Schwab Alternative Investment Source, a platform designed to provide the company's independent advisor clients with registered no-load alternative investments.
Since the launch, Kernan says, assets allocated through the platform have grown 400%. He declined to disclose specific asset totals. The platform consists of 29 funds from 13 issuers, most of them funds of hedge fund products. Kernan says 243 advisors are currently using the platform.
How is the platform figuring into these advisors' allocation strategies?
One clear use has been as a diversification tool for high-net-worth clients, Kernan says. He notes that despite the drive to bring hedge funds into the mainstream a few years ago, the funds remain a tool that's mainly used by and for accredited investors.
The average investment, or "ticket," on the Alternative Investment Source is more than $100,000, Kernan notes, adding that the average account on the platform is north of $1 million.
"The one trend we're seeing with new products is they are going slightly up market," Kernan says. "We're not seeing them chase the retail investor. I think what the trend is now is that if you're going to go mainstream, it makes more sense to offer the strategy in a mutual fund."
Small- and mid-sized tax-exempt plans have also made use of the platform, as tax exempt foundations and endowments have found it easier to work with the registered fund vehicles offered on the platform, he says.
While multi-strategy hedge funds make up the core of the allocations, there has been a pickup in demand for more defined hedge fund strategies, such as long/short and tactical trading funds, Kernan says.
Among the fund of funds providers available on the platform are CSFB Alternative Capital, The Frontier Fund, JPMorgan/Undiscovered Managers and Rydex Capital Partners.