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29 Mar 2007

Study Shows Hedge Funds are not Understood by Investors

According to a new Spectrem Perspective report released today, "Alternative Investments: Are They a Priority for Affluent Portfolios?", 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%.

At the same time, just 9% of affluent investors say they are interested in hedge funds. 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. 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," said Catherine S. McBreen, Managing Director of Spectrem Group.

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 (7%).

The Spectrem Perspective(TM) report, "Alternative Investments: Are They a Priority for Affluent Portfolios?" is based on telephone interviews conducted in late 2006 with 514 affluent households, defined as those with more than $500,000 of investable assets. The margin of error is plus or minus 4.3 percentage points.