Preqin’s Hedge Fund Investor Profiles online service reveals that the North America and Europe regions represent 89% of all institutional hedge fund investors globally. North America-based investors outnumber Europe-based investors by a ratio of 3-to-1, with 67% of investors based in North America and 22% in Europe.
While North America makes up the majority of the number of hedge fund investors globally, Europe-based hedge fund investors on average have more in assets under management than their North America-based counterparts. The average total assets under management of a North America-based hedge fund investor is $6.8bn, while the average Europe-based hedge fund investor has total assets of $22.5bn, over three times more. This difference can largely be explained by the diversity of the North American investor base. For example, foundations and endowments, which are typically smaller in size compared to other institutional investors, make up 45% of North America-based institutional investors in hedge funds, while comprising only 9% of Europe-based investors.
Despite having fewer assets under management, on average, than Europe-based investors, North America-based investors have a higher average allocation to hedge funds. North America-based investors maintain an average hedge fund allocation of approximately 16%, while Europe-based investors typically commit 10% of their total assets to the asset class. Investors within North America are the most experienced when it comes to hedge fund investing and as a result these investors have more confidence in allocating a larger portion of their portfolio to the asset class. However, Europe-based investors, on average, include more hedge funds within their portfolio, with the typical European investor holding 23 funds, compared to the 12 typically held by North America-based investors. Interestingly, taking into account average hedge fund allocations, this means each Europe-based hedge fund investment represents approximately 0.40% of total assets, with each North America-based hedge fund investment representing 1.3% of assets under management.
In terms of minimum manager requirements and first-time-fund preferences, we can see a clear difference in appetites between the two investor groups. Europe-based investors with minimum manager requirements seek managers with track records of at least three years on average, and assets under management of approximately $340mn. North America-based investors, on the other hand, seek track records closer to four years on average, and assets under management of $420mn. North America-based investors maintain a more conservative approach on average due to the larger number of smaller investors based within the region. There is a similar dynamic with regards to first time fund preferences; 35% of Europe-based investors state that they will allocate to emerging managers, versus 30% of North America-based investors saying the same.
In conclusion, while North America-based and Europe-based investors dominate the hedge fund industry, there are explicit differences between the two investor groups. North America-based investors are most prominent in terms of numbers and, on average these investors allocate a higher proportion of total assets to hedge funds than Europe-based investors. However, Europe-based investors are significantly larger on average than their North America-based investors, and this means that North America-based investors typically have a more conservative approach to manager selection. Both of these investor groups will continue to be a key source of capital for the hedge fund industry moving forward.