How Hedge Funds Are Reinventing Investment Vehicles to Serve Demand for Access, Liquidity & Lower Fees

Recent research and market data show hedge funds pushing into novel investment vehicles as investor demand shifts toward liquidity, fee transparency, and ease of access. The widening array of wrappers—ETFs, interval/evergreen funds, semi-liquid funds, and separately managed accounts (SMAs)/funds of one—reflects a broader trend of democratizing what were once institutional-only strategies. In many cases, hedge fund firms are leveraging regulatory changes and product innovations to deliver similar return/risk profiles while accommodating clents who are less tolerant of locks, high fees, or opaqueness.

A prime example of this shift is Markets Media’s summary of a Cerulli Edge report documenting: in 2024, the global hedge fund ecosystem grew 9.3%, driven mainly by performance, with inflows into credit and multistrategy funds; and investors’ primary objectives using hedge-fund strategies are volatility dampening (79%), diversification (71%), and enhanced returns (50%) [1]. Investors are pressing for fee structures and vehicle types (e.g. semi-liquid, SMAs, ETFs) that align with those goals.

We observe multiple vehicle-level innovations gaining traction in 2025. Major asset managers are launching “liquid alternatives” via ETFs that encapsulate hedge-fund like strategies: e.g. Fidelity’s and BlackRock’s managed futures ETFs [4], Man Group’s high-yield and income active ETFs aimed at retail [5]. Semi-transparent and shielded ETFs, which disclose holdings less frequently, are being approved in Europe, and regulators are enabling innovation in vehicle structure to cater to active managers wary of front-running [2].

On the distribution of capital, larger hedge funds (>$5B AUM) continue dominating inflows: HFR data shows that nearly all of the $33.7B in hedge fund net inflows in Q3 2025 went to large firms [3]. Nevertheless, emerging managers are finding paths to capital via innovative platforms and lighter infrastructure—a trend noted in the rise of launches and reduced burn rates—from semi-liquid funds to SMAs/funds of one [4][5].

Strategic implications include:

• Established hedge funds must evaluate whether to adapt existing strategies into more liquid or fee-competitive vehicles, or risk losing allocations to hybrids or new entrants.
• Retail access to hedge-like strategies will grow, but with regulatory, disclosure, and performance tracking becoming key distinguishing features.
• Fee structures are under pressure: a move away from traditional “2 & 20” toward lower fees in liquid wrappers, with active ETF conversions offering meaningful precedents [5].
• Emerging managers have an opportunity via plug-and-play infrastructure platforms and demand for niche alpha, but face challenges scaling without losing nimbleness or forcing undesired dilution of strategy.

Open questions that merit close monitoring:

• How will semi-liquid and active ETF wrappers perform in stressed markets or during liquidity mismatches?
• Will alpha sources erode as strategies migrate into transparent or near-transparent vehicles and markets adjust?
• What regulatory risks might arise from new disclosure rules, front-running concerns, or from conflating vehicle liquidity with strategy risk?
• How will the investor mix (institutional vs retail) in these innovative vehicles evolve, and what are the implications for governance, risk management, and returns?