Investors want hedge fund-like strategies - but some don't want to deal with the notoriously secretive hedge fund space. Other asset managers see an opportunity.

Gregory Payan/AP

An NFL fan uses a magnifying glass to view the Super Bowl Ring exhibit at NFLX on Sunday, January 31, 2106 in San Francisco, CA.

• Hedge funds are not always known for their transparency, even with their own investors, but side industries have popped up offering investors hedge fund-like strategies in a more open wrapper.
• Some asset managers are pinning their hopes on growth in liquid alternative ETFs. Those kinds of ETFs are expected to triple in assets over the 12 months, according to a Greenwich Associates survey on behalf of IndexIQ.
• Money continues to pour into managed account platforms like BNY's HedgeMark, despite the hedge fund industry losing assets.
• Apart from simple curiosity about what they're invested in, big investors worried about putting money in crowded trades are growing more sophisticated with what they can do with data about strategies and the sources of return.
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A receding tide is not sinking all ships for hedge-fund like strategies.

The $3.2 trillion subset of the asset management space has had six straight quarters of investor outflows according to the latest data from industry tracker eVestment, with $77 billion more assets leaving hedge funds this year than going into them. Underwhelming returns compared to the market coupled with high fees have soured investors on the space they once clamored to get into.

But some structures offering hedge fund-like strategies are booming. Managed account platforms that let investors set up an individualized account with a manager, continue to grow, with BNY Mellon's HedgeMark platform, where a hedge fund manager runs a pool from a third-party investor who gets to customize the strategy, growing assets by nearly a third in the first half of this year to $21 billion.

Liquid alternative ETFs, which look to mimic the strategies of hedge funds with less leverage, are seen nearly tripling in assets over the next 12 months, according to a study from Greenwich Associates commissioned by ETF provider IndexIQ, from $47 billion to $114 billion. Previously, investors with the biggest pools of money - pensions, endowments, and others - were not comfortable enough with the ETF structure to consider this option, the study stated.

The industry's biggest investors, it turns out, still are attracted to hedge fund-like strategies - they just want to know more about what they are investing in. Apart from simple curiosity about what they're invested in, big investors worried about putting money in crowded trades are growing more sophisticated with what they can do with data about strategies and the sources of return.

"Transparency is a key driver in this demand," said Andrew Lapkin, the CEO of HedgeMark. On managed account platforms, investors can get daily transparency into trades and risk, instead of a monthly letter that does not give a real-time look at the portfolio. Groups like the CFA Institute have tried to shed more light on hedge fund performance with codified performance-reporting standards, but it still requires industry-wide buy-in.

See more: An SEC official is siding with big asset managers that say hedge funds like Saba Capital should be banned from taking activist stakes in closed-end funds

Liquid alternative ETFs, like the ones offered by New York Life subsidiary IndexIQ, offer even more transparency, since their individual holdings are public, and the funds themselves are required to be very liquid. As ETFs multiply and grow assets - passive products recently hit the 50% mark of equity investments - providers have been looking for ways to offer funds that stand out in the crowd.

These strategies have struggled to take off, partially because of their fees, which are much higher than the average ETF, but much cheaper than the average hedge fund. These ETFs offer approaches inspired by hedge fund strategies like merger arbitrage. At IndexIQ, the merger arb strategy does not buy individual stocks, but instead places bets on entire industries.

"We think that the ETF structure can deliver what investors are looking for from their alternatives allocation at a lower cost with additional benefits of liquidity and transparency," said Kelly Ye, director of research at IndexIQ. The firm was formed in 2006, and was bought at the end of 2014 for roughly $100 million by New York Life.

The tricky thing is getting hedge fund managers to buy into the transparency craze. Similar to the industry-wide reduction in fees, hedge fund managers are somewhat at the whim of their largest investors as to how much information they need to share.

Hedge funds agreed to some additional transparency regulations following the financial crisis and Bernie Madoff's high-profile investment Ponzi scheme, but "we haven't seen very much industry consensus around extending" it to retail fund levels, said Nick Eisenlau, the director of Citco's institutional services, one of the biggest middle- and back-office service providers for hedge funds and other alternative investment managers.

Established hedge funds, he said, are not interested in joining platforms like HedgeMark.

See more: Hedge-fund investors want a deal on fees. Managers don't start negotiating until the check hits $120 million.

For his part, HedgeMark's Lapkin acknowledges the challenges of getting competitive and secretive managers - some that don't even have a website - to join. "There often is trepidation to go down this path" from managers, he said.

But institutional investors that are able to make large enough investments to make joining a managed account platform worthwhile for a manager have become more sophisticated and can actually do something with the extra information they get from manages, said Eisenlau.

"There is an expectation of data services and underlying portfolio information now" because sophisticated investors have the technology and analytics capabilities to synthesize it, he said. These same large investors are also under tremendous pressure to meet their own deadlines and goals, like underfunded pensions that desperately need to close the gap.

Those investors, industry observers say, need to be able to review which of their managers are actually producing alpha. At Titan Advisors, which invests for pensions and endowments, the big concern is crowded trades, where managers are all chasing the same return.

"We are seeking out funds that make money and don't follow the crowd," said Herman Laret, director of Global Macro, CTA, and Multi-Strategy for Titan Advisors, at the Greenwich Economic Forum this week.

In the end, Lapkin said, the best managers should all want more transparency.

"The extra transparency should show how talented you are," he said.