According to a report by Aite Group, Spain’s fund of hedge funds market is taking off following legislation allowing retail investors to put money into the asset class. Spanish investors with more than €50,000 in disposable assets can invest in hedge funds, although it is expected that funds of hedge funds will be the preferred route. Hedge fund managers should be positioning themselves to capture the new influx of capital from the investor base.
In November 2005, Madrid passed the "summer law", approved in spring 2006, which laid down the final rules of selling and marketing hedge funds in the country. The regulation has opened up the hedge fund industry to retail investors, who are being attracted to the asset class for diversification reasons. Around 70% of Spain’s retail assets are held in cash products or guaranteed products.
The Aite report says it is still too early for long-only managers to develop or buy up hedge fund management teams, but funds of hedge funds in Spain will begin to attract retail inflows. Phillip Silitschanu, author of the report and director of European research at Aite Group, says the effects of the regulation are already beginning to be noticed. "Since spring this year, retail investors have started to realize that they should be looking at hedge funds, and people are now talking about it with one another."
According to the report, nearly 30 asset managers have already received authorization to manage hedge funds in Spain. It names BBVA, Santander, Caja Madrid, Deutsche Bank, UBS and Barclays as being among the largest financial organizations to receive authorization. Among funds of hedge funds, Optimal Investment Services set up in 2006 and hopes to have raised €7.5 billion in fund of hedge funds assets by the end of 2007. BBVA, in conjunction with Schroders, launched a fund of hedge funds in February 2007 aimed at capturing retail investors.
Silischanu says that many of the hedge fund managers wanting to tap into the new investor base in Spain will look to tap into the funds of hedge funds there or the banks as distributors. "OECD hedge funds will be looking at this space and working out how to access the market. It’s uncharted territory at the moment."