Current Activity and Preferences of London-Based Hedge Fund Investors – October 2014

by Joseph Lee

  • 24 Oct 2014
  • HF

London is a key source of investment for many hedge fund managers as the UK continues to be the hub of the European hedge fund market. Preqin’s Hedge Fund Investor Profiles tracks 240 hedge fund investors based in London, collectively managing over $4.6tn in assets. According to Preqin data, these investors have an average of 25 hedge funds in their portfolio and an average target allocation of 12.7% to the asset class, compared to 9.5% for the rest of Europe. Moreover, London-based hedge fund investors tend to be more sophisticated and experienced, having made their first investment to the asset class on average 11 years ago, compared to eight years ago for all other Europe-based hedge fund investors. Using data from Preqin’s Hedge Fund Investor Profiles, we take a look at the current activity of hedge fund investors based in the one of the world’s most prominent financial centres and the preferences that are currently driving their hedge fund allocations.  

The chart shows that fund of hedge funds managers make up the largest proportion of institutional investors based in London (28%), as their extensive network of resources and connections enable them to thrive in this established financial capital. Wealth managers represent the second highest proportion (17%), demonstrating the large number of high-net-worth individuals that are based in London. 

In terms of regional preferences, 55% of hedge fund investors based in London have an appetite for hedge funds in Europe. Europe-based hedge fund managers have faced difficulties in recent years gaining foreign institutional capital as regulations in Europe, such as the AIFMD, have added to the complexity and costs of marketing Europe-based hedge funds abroad. With a high proportion of experienced investors seeking local opportunities, investors in London could remain a reliable source of capital for the region amid the impact of European regulation. In comparison, these investors have also demonstrated a preference for US-based managers (37%) and emerging markets (29%).

Furthermore, Preqin data indicates that 77% of investors based in London utilize commingled direct hedge fund structures, while a healthy proportion (49%) of investors (excluding fund of hedge funds managers) look to profit from multi-manager structures. A small proportion of hedge fund investors in London (16%) currently allocate to managed accounts, suggesting that there are some investors keen to benefit from more transparency and improved liquidity within their hedge fund investments.

Since London is home to a variety of institutional investors making significant allocations to the asset class, London-based investors represent an important source of capital for hedge fund managers across the globe. On average, these investors made their first hedge fund allocation 11 years ago, and their target allocations were generally higher compared to their European counterparts. Moreover, London as a financial capital allows for these investors to thrive. It is likely that London will remain active in the hedge fund space going forward and a reliable source of capital for the industry. 

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