Institutional Money Tops 25% of Assets For World's Largest Hedge Funds
( Greenwich Associates )
(June 18, 2007)
Monday, June 18, 2007 Greenwich, CT USA - Direct investments by endowments, foundations, corporate pension funds and public pensions together represent a quarter of the assets of the world's largest hedge funds, up from 22% in 2006 and 20% in 2005.
The results of a new study conducted by Greenwich Associates in conjunction with Global Custodian magazine illustrate the growing importance of institutional investors to hedge funds with more than $1 billion in assets under management. "The 25% of assets attributed to direct investment by endowments, foundations and pensions actually understates the institutional component of the hedge fund asset base by a considerable margin," says Greenwich Associates consultant John Feng. "Institutions are also big investors in hedge funds of funds, which represent another 25% of hedge fund assets."
In fact, the new study reveals that funds of funds have topped high net-worth individuals and family offices as a source of assets for these large hedge funds, with high net-worth individuals and family offices contributing 21% of total assets. "Institutions choose to invest in funds of funds to access their diversification, risk controls and general industry expertise. The largest institutions may also use funds of funds to put allocated dollars to work as they search for opportunities for direct investments," says Greenwich Associates Hedge Fund Specialist Karan Sampson.
The share of institutional assets invested in hedge funds has been growing slowly but steadily for the past several years. In 2006, U.S. institutions allocated 2.1% of total assets to hedge funds and funds of funds, up from 1.9% in 2005 and 1.6% in 2004. That number may sound trifling, until one considers the sums involved. The total institutional asset pool among the more than 1,900 institutional investors included in Greenwich Associates' institutional research universe is $6.6 trillion.
Obviously, big hedge funds - with sufficient infrastructure and capacity to attract sizable institutional money - are anxious to increase their institutional business. Gauged by three-year institutional trend lines, the big funds' chances look promising. U.S. institutional allocations to hedge funds are now more than double where they stood in 2001. Asked by Greenwich Associates if they invest in hedge funds, some 36% of U.S. institutions responded affirmatively in 2006, up from 32% in 2005 and 29% in 2004. Asked the same question about funds of funds, 25% answered yes in 2006, up from 23% in 2005 and 19% in 2004. What is more, some 22% of the institutions participating in Greenwich Associates' 2006 research said they plan to increase their hedge fund allocation by 2009, versus only 2% that said they plan to decrease that allocation.
For more information contact:
+1 (203) 625 4354
Greenwich Associates is the leading international research-based consulting firm in institutional financial services. Greenwich's studies provide benefits to the buyers and sellers of financial services in the form of benchmark information on best practices and market intelligence on overall trends. Based in Greenwich, Connecticut, with additional offices in London, Toronto, and Tokyo, the firm offers over 100 research-based consulting programs to more than 250 global financial-services companies. Please contact us for further information or to arrange an interview with one of our consultants. You can visit our website, www.greenwich.com, for more information.