29/06/2011
Direct investment in hedge funds gaining ground
In the wake of the financial crisis, a growing number of institutional investors, especially pension funds and sovereign funds, are investing directly in hedge funds, according to an international survey undertaken by Citi Prime Finance, covering a sample of 60 major investors, representing over USD1.7trn in assets, and hedge fund managers with USD186bn in assets under management (“Global Pension and Sovereign Wealth Fund Investment in Hedge Funds: The Growth and Impact of Direct Investing,” June 2011). This development may be working to the disadvantage of traditional funds of funds. Contrary to the received idea that funds allocated directly go mostly to the major hedge fund managers, the survey finds that smaller hedge funds, with total assets of USD1bn to USD5bn, saw the most net growth in 2010. Hedge funds in this range are the favourites of allocators; the range may go as low as USD500m in developed countries, and USD250m in emerging markets. However, hedge funds with assets of USD250m to USD500m pose problems of size for direct allocators, who often have legal or discretionary limitations, and whose allocations may not exceed 10% to 25% of the total assets in a hedge fund. In terms of the size problem, there are also a growing number of obstacles to overcome in order to serve the institutional market. Being selected for a list by a consultant is no longer as easy, as consultants tend to favour larger managers, with assets under management of over USD5bn.
