Survey Shows Advisors Slow To Recommend Hedge Funds

Investors Offshore, New York

31 January 2002

In a survey conducted by Spectrem Group on behalf of Montgomery Asset Management more than 60 percent of affluent investors indicated interest in a product with the key characteristics of hedge funds, yet only 7 percent hold hedge fund investments. The study also determined that 72 percent of the surveyed investors rely - to some degree - on Financial Advisor advice and recommendations. However, according to respondents, most Advisors focus on stock, bond and mutual fund recommendations. Only 5% said that their Advisor had selected an alternative investment - such as hedge funds, private equity or venture capital - for their portfolios in the last 12 months.

Montgomery Partners, the alternative investments group of Montgomery Asset Management, LLC, engaged Spectrem Group - a financial services consulting and research firm - to survey a representative, nationwide sample of individuals with more than $1 million in net worth in December 2001. The survey focused on the respondent's perception and understanding of alternative investments - particularly hedge funds; the degree to which the products are held in high net worth portfolios; and the role that Financial Advisors play in educating and advising clients on alternative investments. The survey also employs findings sourced from Spectrem Group's "2001 Ultra High Net Worth Study."

"The survey confirms a trend-in-the-making that we've seen developing at Montgomery," said CEO Scott Tuck. "Affluent investors are clearly seeking some of the benefits that can be derived from hedge funds, such as `absolute returns' in good and bad markets. At the same time, advances in alternative investment design, such as lower minimums and instant diversification through funds-of-funds, have brought products such as hedge funds within reach of a new segment of investors. All signs point to the asset class being poised for considerable growth in 2002."

"The survey results underscore the pivotal role Financial Advisors will play in bringing alternative investments to a wider range of investors," said Montgomery Partners Managing Director Bill Santos. "For example, nearly 80% of those surveyed expressed interest in a product with absolute return characteristics--but, according to the results, only 5% of Advisors have selected an alternative investment for their clients. Seventy two percent of respondents use a Financial Advisor and nearly 50% said they rely on their Advisor to garner `information on new products.' Further, in terms of advice received over the last year, only 12% noted that they were advised to diversify `assets away from a concentrated position.'

"The composite picture that emerges from the joint studies indicate a unique opportunity for Advisors to inform and advise their clients on how alternative products can enhance a portfolio's risk-adjusted returns. These investors clearly desire the benefits derived from investments like hedge funds--but they're not going to seek them out on their own. Now, with products like diversified funds-of-hedge funds with lower minimums, there are vehicles that make sense for these clients. But, the Advisor will have to carry the message and make the case for the asset class."

Survey findings underscored limited investor knowledge of alternative investments, even for self-described "investment experts." Where 68% claimed a good understanding of mutual funds, only 17% made the same claim in regard to hedge funds--with limited partnerships (35%), private equity investments (28%) and exchange-traded funds (21%) all ranking higher.

An illustration of unclear investor perceptions of the category is reflected in mixed responses to questions regarding risk and volatility. When asked if hedge funds are "very risky," 46% confirmed the statement, yet 38% of respondents characterized the product as "a way to minimize risk." And, in terms of overall understanding of the category, only 19% stated that their knowledge of hedge funds has increased over the last year.

Based in San Francisco, Montgomery Asset Management, LLC is an investment firm managing more than $7 billion in global assets for its clients. An affiliate of Commerzbank AG, the organization is known for its innovative product line and bottom-up securities-picking expertise as an institutional money manager. Founded in 1990, Montgomery is also recognized for offering this same high quality investment capability to mutual fund investors through The Montgomery Funds. Further information on the firm and its products can be found at www.montgomeryasset.com.

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