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

Taking the future into account

At the International Centre for Pension Management’s biannual meeting in London, Jack Gray and Generation’s David Blood had a tête à tête on sustainability. An academic at the Paul Woolley Centre for Capital Market Dysfunctionality at the University of Technology Sydney, Gray has written a paper, Misadventures of an Irresponsible Investor, that at its core

Kay calls for philosophical shift

In an interview with conexust1f.flywheelstaging.com, John Kay, economist and author of the UK government-commissioned enquiry into long termism and the UK equity markets, has said it is “fanciful to imagine large number of trustees will have the skills and knowledge to have long-term relationships with corporates”. Kay says the key players in the UK equity

UK equity allocation falls

Equity allocation by UK pension schemes continues to fall, but the assets are being re-allocated into “everything else except gilts”, according to Mercer chief investment officer, Andrew Kirton. Last year equities allocations by UK pension funds fell by 5 per cent, according to Mercer, as they attempt to deal with the enormous amount of pension

CalSTRS considers
asset risk factors

The $152.5-billion Californian State Teachers Retirement System (CalSTRS) is undertaking an asset-allocation review that will consider the underlying risk factors of assets for the first time. Chris Ailman, chief investment officer of CalSTRS, says the fund is in the middle of an asset-allocation study, which would likely take six months, and would take a different

Natixis champions
Asian alternatives

In a bid to achieve long-term returns without incurring the risk of today’s choppy markets, Asia’s biggest institutional investors are increasingly opting for alternatives in their asset allocation. The majority of respondents in a survey of 120 Asian institutional investors no longer deem long-held industry norms – such as lengthy holding periods or conventional 60/40

PIP in to infrastructure

A swathe of UK pension funds is poised to increase its exposure to infrastructure. In a small start, which enthusiasts believe will quickly grow, the Pension Infrastructure Platform (PIP) will launch as a fund in January 2013, targeting £2 billion ($3.24 billion) worth of projects with the backing of around 10 UK pension funds. The

Previous