Wednesday, 10 February 2016
Last updated 4 hours ago
Sep 12 2011 | 12:54pm ET
Institutional investors are so concerned about liquidity, 30% of those polled by the Preqin research firm say they would not consider investing in a hedge fund with a lock-up period.
Preqin conducted detailed interviews with 80 institutional investment officers, all of whom said they had maintained or increased their liquidity requirements since 2008 and 75% of whom are looking for greater liquidity in their hedge fund investments post-financial crisis.
In its study, Preqin cites the case of one European-based fund of hedge funds manager which had previously invested in funds with lock-up periods of over 12 months. The fund said that due to greater demand for flexibility amongst its underlying investors, it now only considered completely liquid vehicles.
The study found that only 6% of the institutional investment officers polled would invest in a vehicle with a lock-up period of over 24 months.
It also found that 46% of investors prefer quarterly redemptions, while 32% prefer monthly redemptions. Moreover, 42% of respondents said they’d be willing to accept longer lock-ups in return for lower management fees, while 38% felt the same about performance fees. A full 12% will only consider investing in liquid strategies at this time.
Preqin says 54% of investors have invested in a fund which gated assets and the same percentage said they’d consider a fund with gating clauses in future.
The study also found that 30% of hedge fund managers have shortened redemption periods since 2008, 44% of hedge fund managers rate liquidity as something they pay a high level of attention to, and 53% of funds do not lock-up institutional capital.
“The majority of investors have increased their liquidity requirements following the market downturn and the demand for funds with shorter lock-up periods and greater flexibility in terms of redemptions has grown in the years since 2008. Those funds that have adopted better liquidity terms for their investors have been more successful in gaining institutional capital, while demand for increased liquidity is also driving the growth of specialist structures such as managed accounts and UCITS. Investors are demonstrating flexibility, with a significant number willing to compromise their liquidity demands in return for more favorable fund terms elsewhere. Ultimately, however, managers that understand the needs of investors andadapt their products accordingly will be the most successful in attracting institutional capital,” said Amy Bensted of Preqin.