Fig.4 Proportion of hedge fund managers that have noted a change in the proportion of capital coming from different types of institutional investor in 2013
Source: Preqin Hedge Fund Manager Interviews, November 2013
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
18% 8% 1% 1% 1% 3% Increased 1% Stayed the same 7% 5% Decreased 0%
just 7% of fund managers reported a decline in the proportion of their assets coming from institutional investors; therefore, the net movement has been in favour of more managers picking up larger amounts of institutional capital (see Fig.3).
48% 62% 90% 86% 85%72% 84%43% 61%56% 34% 30% 9% 13% 14%24% 15%50% 34%44%
Fig.5 Mean current allocation to hedge funds (as a percentage of AUM) by investor type (2011 - 2013)
Source: Preqin Hedge Fund Investor Profiles
0% 5% 10% 15% 20% 25%
2011 2012 2013
Institutional assets by investor type With industry assets under management increasing and managers reporting that they are seeing an overall higher percentage of capital coming from institutional investors, it is interesting to evaluate where this money is coming from. Fund managers were asked if they had noticed any change in the proportion of capital coming from various institutional groups in 2013, with the results presented in Fig.4. There has been resurgence in the amount of capital being committed to hedge funds by private wealth firms in 2013, with 50% and 34% of managers indicating that they had seen a higher proportion of assets coming from family offices and wealth managers respectively. This increased activity from family offices in 2013 is supported by data from Preqin’s Hedge Fund Investor Profiles, which show that the average current hedge fund allocation among family offices increased from 16.6% in December 2012 to 19.5% in December 2013 (see Fig.5).
An increased proportion of assets coming from fund of hedge funds managers in 2013 was reported by 34% of managers; however, a noticeable 18% of managers reported a lesser percentage of their assets coming from these firms, highlighting the fact that many fund of hedge funds managers have struggled to raise assets over the past few years. As funds become more established, managers often prefer inflows from institutional investors rather than fund of hedge funds managers, as investments from institutions tend to be longer-term in nature and ticket sizes can often be larger. However, funds of hedge funds are likely to remain a key source of capital for smaller hedge funds due to their ability to focus on emerging managers and niche strategies.
Fig.6 Breakdown of planned new hedge fund launches in 2014 by quarter Source: Preqin Hedge Fund Manager Interviews, November 2013
Q2 2014 (36%) Q3 2014 (12%) Unsure (8%) Q1 2014 (44%)
Public and private sector pension funds are continuing to allocate to hedge funds, and 15% and 24% of hedge fund managers reported an increased proportion of assets from these groups respectively. Both of these investor groups increased their mean hedge fund allocation by 0.6 percentage points in 2013 and pensions are expected to continue to be active in seeking new hedge fund investments over the coming year. Endowment plans are established investors in hedge funds and many of these firms are already operating at their optimum hedge fund allocation; 90% of managers noted that the proportion of capital coming from these investors in 2013 had not changed and the mean current allocation to hedge funds from endowments has fluctuated only slightly from 18.7% in 2012 to 18.9% in 2013.
19
MEAN CURRENT ALLOCATION TO HEDGE FUNDS
PROPORTION OF RESPONDENTS
19.7%
Endowment plan
18.7% 18.9%
14.9% Family office 16.6% 19.5% 15.6% Foundation 3.8%
Insurance company
2.3% 2.5%
8.2%
Private sector pension fund
9.3% 9.9%
Public pension fund
6.8% 6.9%
7.5%
Wealth managers
Sovereign wealth fund
6.9% 6.6%
6.9% Other
Public pension funds
Family offices 16.6% 17.5%
Insurance companies
Private sector pension funds
Endowment plans
Foundations
Fund of hedge funds managers
Asset managers
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