Europe-based public pension funds represent a fifth of the global population of public pension funds investing in hedge funds. However, according to Preqin’s Hedge Fund Online, the number of Europe-based public pension funds active in the asset class has fallen over recent years from a peak of 121 active investors in 2012 to 81 in 2016.
Despite the decline in number, these institutions have increased their allocation to hedge funds: on average, Europe-based public pension funds allocate 6.2% of total assets to hedge funds, up from 5.0% in 2011. In the same period, North America-based public pension funds, which typically have more experience operating in hedge funds, have demonstrated an even greater appetite for the asset class, increasing their average current allocation from 7.4% in 2011 to 9.0% in 2016.
Although small in number compared with other types of European institutions, public pension funds are typically larger in terms of assets under management (AUM). Over 81% of Europe-based public pension funds active in hedge funds have over $1bn in AUM, and the 20 largest hedge fund investors all have AUM over $10bn. This highlights how even a small increase in allocations among this group of investors could unlock significantly large pools of capital for hedge fund managers.
Although some Europe-based public pension funds have sought to exit the asset class, a substantial proportion of those active in hedge funds are large and experienced investors. Furthermore, the asset class has also seen new entrants make their maiden hedge fund commitments in recent years. Royal London Borough of Greenwich Pension Fund is one Europe-based investor set to make its maiden commitment to the hedge fund industry, having established a mandate in Q1 2016 to seek exposure to the asset class.