Survey: Institutional Investors Account for Bulk Of Hedge Fund Capital

Feb 10 2011 | 12:30pm ET

Institutional investors now account for 61% of hedge fund capital, according to a new study from alternative asset information provider Preqin.

Preqin surveyed 60 firms with combined AUM of $100 billion and found that they are altering their fees, risk adjustment procedures and strategic offerings to attract institutional investors to their hedge funds. Institutional capital is at an all time high within the sector, and 85% of the 60 hedge fund managers interviewed believe that it will increase even more over the next 18 months.

As a result of having more institutional investors in their funds, 46% of managers have put more risk management procedures in place, 42% have reduced the fees charged on funds and 21% have introduced alternatives to commingled funds to attract or maintain institutional interest.

A full 57% of respondents said institutions accounted for over half their assets. Another 47% of managers have seen an increase in institutional capital over the past three years and over five year, that number increases to 56%.

Almost half of those surveyed plan to market specifically to the institutional sector in the coming 12 months and 15% expect to launch UCITS-structured hedge funds, which are increasingly attractive to institutional investors.

“The consensus is clear,” said Preqin’s Amy Bensted, “Hedge fund managers are witnessing large inflows of capital from institutional investors, and are adapting their fund strategies and marketing accordingly. Smaller funds continue to find it more difficult to attract institutional investors, as many do not have sufficient assets under management to be a viable investment option for some of these investors. However, most fund managers are expecting more money from institutional coffers over 2011 and into 2012, suggesting that the proportion of institutional capital in the sector is due to grow even more over the next 18 months.”

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