Institutional investors are mulling hedge fund investments that could be worth a combined $195 billion over the next 12 months, according to the latest numbers from Preqin research.
The firm’s latest hedge fund investor study, based on information from its database of 2,700 investors, found that 32% of investors plan to make a commitment to hedge funds in the coming year. Of these, 47% are looking at funds of hedge funds. Total capital earmarked for new hedge fund investments from these institutions ranges from $125 billion at investors’ lower estimates, up to $195 billion at the top end of the scale.
Funds of hedge funds, says Preqin, are most avidly seeking new hedge fund opportunities, with over 50% planning new allocations. The study cites the example of Permal, a $23 billion fund of funds that may add up to 25 new funds to its portfolios over the next 12 months as a result of a new fund of funds launch and natural turnover within its existing vehicles.
Among sovereign wealth funds, Preqin says over a third are looking at making additional hedge fund allocations over the next 12 months, as are 36% of public sector pension funds.
Just 29% of North American investors plan new fund allocations in 2011 and 2012 compared to 45% of those in Europe and 32% of those in the Asia and Rest of World category.
Preqin says 87% of investors planning to add to their hedge fund portfolios plan to include long/short equity funds. The study cites as an example Zurich-based Clariden Leu, a fund of hedge funds manager that plans to allocate a total of $30 million to 10 long/short equity managers in the next year. Macro strategies are also popular, as are opportunistic strategies.
There’s some good news for smaller managers in this report, with just over one-third of investors considering vehicles with less than $100 million in assets under management.
“With nearly a third of the investors on the Preqin database having fixed plans for new investments in the next 12 months, and many others investing opportunistically or considering new allocations, the future is looking bright for the industry. Investors could invest up to $195 billion in the next 12 months, with up to 2,000 funds currently being sought. Funds of hedge funds, pension funds, insurance companies and a large number of other investor groups are looking to increase their hedge fund portfolios in the next year. These investors are seeking a wide range of strategies and structures and therefore it is vital that managers have the best intelligence on these investors if they are to gain a slice of this capital,” said report author Katherine Johnson.