Institutional investor interest in hedge funds has returned in 2010 following a difficult fundraising period resulting from the financial crisis.
This interest has been characterised by an increase in the number of new manager search mandates issued by institutional investors. Funds of funds were particularly hard hit following redemption requests as a result of poor performance relative to their direct manager counterparts and exposure to Madoff feeder funds. However, positive inflows have returned to the funds of funds industry. This has occurred as a result of not only an increase in the level of confidence displayed by investors in fund of hedge funds, but also following changes in the offerings by managers. Funds of hedge fund managers are being much more flexible in the fee and liquidity terms that they offer their investors as well as offering specialised managed account structures which are designed to answer the institutional calls for increased transparency in the industry.
Over the course of Q2 2010 there has been noticeable upwards trend in the number of RFPs issued for funds of funds managers, in particular by US public pension funds. In April alone Preqin tracked six such searches issued by some of the largest public pension bodies in the US. Current searches for funds of funds include the USD 68.3 billion Ohio Public Employees Retirement System which could add up to USD 800 million to its hedge fund portfolio following its latest search for funds of funds managers. This trend is likely to continue into the second half of 2010 as we are witnessing more institutional investors setting their first allocations to hedge funds and hiring consultants to assist them in their search for new funds of funds investments.
Preqin monitors 142 US public pension funds with an interest in funds of hedge funds on its institutional investor database, Hedge Fund Investor Profiles. For more information Preqin’s Hedge Fund Investor Profiles database, please see Hedge Investor Profiles