Institutions Show Appetite For Emerging Hedge Funds

May 27 2008 | 10:30am ET

With hedge fund assets under management reaching US$3 trillion and new hedge funds appearing every month, institutional investors say they’ll invest in newbie hedge funds, specifically spinout teams.

According to a Preqin Hedge survey of 50 institutional investors, 46% will invest in emerging manager hedge funds, and the number grows to 56% regarding spinout teams. Just 8% said they will provide seed capital to new vehicles.

When it comes to experience, 39% of respondents required a two-year track record or less, while 24% of institutions surveyed said they would not invest in a hedge fund unless the manager had more than five years of fund management experience. And 6% of institutions reported that they required no specific track record.

“With so many new investors entering the hedge fund market place, competition for access to the best funds and the best sources of returns is increasing,” said Amy Bensted at Preqin Hedge. “With the institutional market maturing, many investors are now using their knowledge and resources to invest in younger, less well established managers to gain access to the next generation of star managers.”

And just how much money does a manager need to entice institutional investors? Forty percent of institutional investors said they would invest in funds that had between US$100 million and US$500 million in total assets, while 17% of respondents demanded no requirements of potential hedge fund managers in terms of assets under management. And only 11% of institutional investors would only invest in a fund provided it had at least US$1 billion in AUM.

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