Early Investors Put $12B Into Hedge Funds From 2009-11

Feb 27 2012 | 9:38am ET

Day-one or early-stage investors allocated $12.4 billion to hedge funds between 2009 and 2011 according to a new survey by Citi Prime Finance.

Citi polled 79 “leading” investors who provide capital to hedge fund managers upon launch or within the first 12 months of a fund’s life. The average size of the funds in which they invested was $16 million for new funds and $37.7 million for established managers.

The report, “Day One & Early Stage Investor Allocations to Hedge Funds,” found that 75% of the investors surveyed approach hedge funds opportunistically, giving equal consideration to emerging and established managers. When it came to allocations, however, they risked less on new funds than on proven managers.

Also of note, only 39% of day-one or early-stage allocations go on to become core investments. When, however, a manager succeeded, the size of the core position was, on average, 5 times the initial ticket in both the U.S. and EMEA and 3.6 times in APAC.

Hedge funds surveyed said that raising capital of any description remains a challenge, with managers pursuing up to 100 meetings to win 2-4 allocations. That’s because, on average, the investors polled had made only 5 day-one or early-stage allocations each over the past three years and 2.2 such allocations in 2011.

“Our Day One & Early Stage survey provides a glimpse into the investor’s decision-making process, giving new funds this valuable insight for the first time,” said Chris Greer, global head of capital introductions, Citi Prime Finance. “Given the ongoing market volatility and shifting landscape for hedge funds, it is necessary that managers understand investor demands in order to raise capital and ultimately mature.”

The survey also found the U.S. investors were the most active day-one/early-stage allocators, surpassing the mandates of EMEA investors by a factor of three and that experienced hedge fund investors, such as funds of funds, tended to be the most frequent investors in newly launched funds.

Citi’s capital advisory and capital introduction teams interviewed over 90 managers and day-one/early-stage investors, including funds of funds, family offices, private banks and endowments. 


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