Sovereigns, Pensions Invest More In Hedge Funds; Do It Directly

Jun 27 2011 | 10:29am ET

Sovereign wealth funds and pensions are not only investing more in hedge funds, they’re rolling up their sleeves and doing their investing directly, rather than relying on funds of funds, according to a new study from Citi Prime Finance.

The study, based on interviews with almost 60 major investors representing $1.65 trillion in AUM and hedge fund managers with $186 billion AUM, also had good news for smaller funds:

“While the conventional wisdom is that directly allocated capital is going only to the largest hedge fund managers, we actually found that smaller hedge funds managing between $1 billion and $5 billion experienced the largest net growth in 2010,” said Sandy Kaul, U.S. head of business advisory services.

“Fund managers in this range occupy a ‘sweet spot’ for investment allocators, with interest extending as low as $500 million in developed markets and $250 million in emerging markets. Above $5 billion we see a bifurcation in the industry among hedge fund managers that are limiting new investment and those that are developing into larger asset management organizations,” said Kaul.

Citi’s report, “Global Pensions and Sovereign Wealth Funds Investment in Hedge Funds: The Growth and Impact of Direct Investing,” says that global pension and sovereign wealth funds today allocate about 3%  ($820 billion) of their $31 trillion asset pool to hedge funds.

Such investments aren’t without implications for hedge fund managers, according to the survey, which says institutional investments are often described as “sticky money” due to the investors’ longer-term investment horizons.

“Size is not the only factor in attracting institutional capital, and other aspects of maturity and stability are equally important in reaching an institutional threshold to make investors attracted to these managers," said Chris Greer, global head of capital introductions.

The survey also revealed that direct allocator hedge fund portfolios typically consist of 20-50 managers. Interviewees usually made one to four allocations per year, writing few, but large tickets ranging from $25 to $100 million. Investors also stressed the importance of “partnership” with their selected managers.

Greer said the role of educating hedge funds in “what it takes to attract and maintain these long-term investments” is falling to prime brokers who “understand both sides of this investor-hedge fund manager dynamic.”


In Depth

Why Ponzi Schemes Work: An In-Depth Look At The Allen Stanford Fraud

Dec 21 2014 | 10:30am ET

Texan Allen Stanford first appeared on the radars of financial regulators in 1997...

Lifestyle

Hedgie Funds US Squash Program

Dec 24 2014 | 8:46am ET

Squash, anyone?

Guest Contributor

EidoSearch’s Top Three Market Projections For 2015

Dec 23 2014 | 4:03am ET

It is that time of year again when prognosticators make their big market calls for...

 

Sponsored Content

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

December 2014 Cover

Futures 2014 person of the year

Jeff Sprecher was simply looking for a platform to trade energies when launching ICE 14 years ago but it has grown to reach the pinnacle of both the listed futures and equities world.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.