Smaller hedge funds suffer in insto-driven market

Smaller hedge fund managers, which may well include some of the best performers, are struggling for inflows due to the institutionalisation of the hedge fund industry, new research from Preqin indicates.

A survey of 60 hedge fund managers by global alternatives research firm Preqin shows that the proportion of hedge fund manager assets sourced from the institutional market, such as pension funds, has risen from 45 per cent in 2008 to 61 per cent in January this year.

The good news for investors is that this trend has been accompanied by increased use of risk management procedures, lower fees and increased transparency from the managers.

However, smaller managers – which often perform best in capacity-constrained strategies in particular – are struggling to attract their fair share of the increased institutional flows.

Preqin estimates that from its database of 2,500 institutional investors in hedge funds, the average minimum requirement for a manager’s assets under management to be investable is around $320 million. The survey results show that managers with less than $250 million get only 45 per cent of their money from institutions, whereas managers in the next category, $250-499 million, get 59 per cent. The largest managers, with more than $10 billion under management, get 67 per cent of their funds from institutional investors.

The Preqin report says: “Moving from an asset class predominated by wealthy individuals and family offices to an institutionally focused industry has fundamentally changed the hedge fund market.

Sponsored Content

“Nearly half of the respondents – 46 per cent – stated that having more institutional investors in their funds has resulted in the firm putting more risk-management procedures in place. Institutional investors have to take into account their responsibilities to meet funding needs, as well as fulfilling regulatory procedures put in place by boards of trustees or wider legislature within their jurisdictions.”

Almost as many respondents – 42 per cent – also said that an increasingly institutional client base has led to a reduction in fees.

“Recent Preqin research has revealed that investors are just now beginning to feel that the fees charged by hedge fund managers have reached a level which is mutually acceptable to both fund manage and institutional client.”

About one-in-five managers has also introduced alternative investment structures, such as UCITS-registered funds in Europe and managed accounts or discretely managed mandates.

Leave a Comment

Sort content by

Equities boost Norway’s SWF

The equity allocation of Norway’s Government Pension Fund Global, which amounts to shares in 8,496 companies, was largely responsible for its outperformance in 2010, with the basic materials sector being the best performer for the fund.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Public pensions shape insto era of hedge funds

The past four-year upsurge in the number of public pension funds investing in hedge funds is shaping the new institutional era of hedge fund management, with funds approaching the asset class for new reasons, says Preqin. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Inflation devalues attempts at consensus

The two big decisions for fiduciary investors this year concern interest rates and currencies. But those decisions are relatively easy. What is a lot more difficult is: how do you go about implementing these big-picture decisions at the hands-on level?mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

CalPERS to slash fees in wake of $1bn external spend

CalPERS will set an external fee reduction target for the financial year, in light of the fact it spent more than $1 billion on external asset management fees in 2009-2010 and only a relatively modest $29.5 million on investment office personnel services including salaries.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

DB beats DC in unequal race

The average corporate defined-benefit plan in the US has outperformed the Callan DC index by 1.61 per cent since 2006, although this is partly due to a difference in fee reporting.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Tail hedging can balance risk: PIMCO

Executive vice-president and head of client analytics at PIMCO, Sebastien Page, who is tasked with bringing the intellectual and analytical capital of the manager to clients in a new consultant-type role, says tail-risk hedging is an effective way to reduce volatility and enhance returns.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous