Wealthy Investors Baffled By Hedge Funds, Survey Suggests

by Phillip Morton, Investors Offshore.com

30 March 2007

Even with all the recent media attention, hedge funds and other alternative investments remain little understood by affluent investors, a new survey has suggested.

Just 18% of affluent investors, defined as having more than $500,000 in investable assets, say they understand hedge funds. Structured products are understood by only 15% of these investors, and private placements come in at 19%, according to a new Spectrem Perspective report, "Alternative Investments: Are They a Priority for Affluent Portfolios?" released Wednesday.

At the same time, just 9% of affluent investors say they are interested in hedge funds, the Spectrem Perspective report said. A similar 9% express interest in structured products, with 10% interested in venture capital, 11% in private placements and 11% in futures.

"While hedge funds have been in the news like no other financial product recently, affluent investors still don't feel they understand these alternative investments," observed Catherine S. McBreen, Managing Director of Spectrem Group.

"This gap in understanding corresponds with a distinct lack of interest in hedge funds and other alternative investments such as structured products and private placements. Financial services providers offering these products need to be proactive in educating affluent investors about their risks and rewards. Given their lack of interest, it seems unlikely these investors will step forward themselves seeking more information," she added.

When asked which of five specific alternative products were the riskiest, affluent investors selected hedge funds (39%), followed by commodities (32%), precious metals (14%), private equity (8%) and REITS (real estate investment trusts, 7%).

The Spectrem Perspective report was based on telephone interviews conducted in late 2006 with 514 affluent households, as previously defined.

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