Institutions Committed To Hedge Funds Despite Falling Returns

Jul 1 2008 | 6:16am ET

Drawdown? What drawdown? Last year's downturn in hedge fund performance has not deterred institutions from investing in the asset classes, according to research from Greenwich Associates and Global Custodian.

The share of hedge fund capital provided by institutions was unchanged from 2006 to 2007, following several years of steady growth. Nevertheless, pension funds, endowments and foundations remain strongly committed to the asset class, directly providing 13% of the average hedge fund's assets under management and an additional 23% via funds of funds.

“High-net-worth individuals and family offices remain the biggest sources of assets for the average hedge fund, accounting for 37% of the total, which does not include about 10% of assets provided by the funds' employees and general partners,” said Greenwich consultant John Feng.

Institutional investors have overtaken high-net worth individuals and family offices as a source of assets for the world's biggest hedge funds. Twenty-five percent of these funds' assets come from direct investments by institutions, while high-net worths and family offices account for 22% of assets. In terms of importance to funds with more than $1 billion in assets, both of these sources rank behind funds of funds, which provide 27% of total assets, up from 25% a year ago, according to Greenwich.

In the U.S., which accounts for the vast majority of global institutional hedge fund investment, nearly 45% of institutions invest in hedge funds, which had grown to represent 2.6% of institutional assets as of 2007—up from 2.2% in 2006 and 1.9% in 2005. Although those percentages seem modest, when converted to dollar terms U.S. institutions' investments in hedge funds totaled some $195 billion in 2007, up from $140 billion in 2006 and $113 billion in 2005.

Twenty-three percent of U.S. institutions said they planned to increase their allocations beyond current levels by 2010; only 2% said they planned to reduce them. Feng noted that average allocations at the country level include many institutions that do not invest in hedge funds at all. “Many active hedge fund users have devoted much larger shares of their assets. For example, U.S. endowments that describe themselves as active hedge fund investors devote on average 16.5% of their total assets to hedge fund investments,” he said.


In Depth

Fundraising for Mid-Sized PE Funds: Should You Use a Registered B/D?

Dec 6 2016 | 7:18pm ET

When does a fund sponsor need to use a registered broker/dealer when raising capital...

Lifestyle

Trump Attends 'Villains and Heroes' Costume Party Dressed As...Himself

Dec 5 2016 | 11:16pm ET

U.S. President-elect Donald Trump attended a "Villains and Heroes" costume party...

Guest Contributor

A Hard Look At Your ‘Soft’ Hedge Fund Marketing Information

Dec 8 2016 | 9:03pm ET

Conventional wisdom holds that due diligence examines quantitative as well as qualitative...

 

From the current issue of

Since the inception of Modern Trader, a core editorial theme has centered on the wisdom and power of crowds. Editorial emphasis has focused on companies and projects engaged in the collection and analysis of information. 

AVAILABLE NOW at BARNES & NOBLE

NEWSTAND LOCATOR