Institutional Investors Make Hedge Funds A Priority

Mar 3 2008 | 11:50am ET

Institutional investors are increasingly making hedge funds, especially funds of hedge funds, a top priority in their portfolios, according to a new survey. 

In Preqin Hedge’s latest survey of 50 hedge fund managers, 55% said that the number of institutional investors in their hedge funds has increased over the last three years. And it is not just new investors that account for the increasing institutional client base of hedge funds: Existing investors, buoyed by the success of their existing hedge fund investments, are also increasing their allocation to the asset class to boost returns and add further diversity to their portfolio.

On the contrary, just 14% of hedge fund managers reported that their institutional investor client base had decreased over the same time period.

“With over half of managers reporting that their institutional client base has grown over the past three years, we predict that this trend will continue and that within a hedge fund the average proportion of investors coming from an institutional background will only increase in the forthcoming years,” Prequin wrote.

The study also found that institutional investors now make up 75% of funds with $25 billion or more in assets. Hedge funds established before 1995 have between 67% and 75% institutional clients while, on average, 60% of fund of hedge funds capital comes from institutional coffers. Global macro (58% institutional), long/short equity (57%) and multi-strategy (49%) funds are also popular with institutional investors.

“It is clear that fund of funds are a common choice for institutional investors with no less than 60% of fund of funds capital, on average, coming from institutional means,” said the firm. “Funds of funds are seen as an excellent route to gain knowledge about hedge funds whilst reducing an investors overall exposure to risky strategies.”

Preqin Hedge is a division of Private Equity Intelligence, a London-based alternative asset research firm.


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