Institutional investors have increasingly been adding hedge funds to their investment portfolios over the past 5 years. Despite the financial crisis, hedge fund blow-ups and shrinking of the asset class over the past 2 years, institutional investors have held fast in their use of these kinds of investments and we estimate that assets from institutional investors and funds of funds now account for up to 70% of all the capital at work in the asset class. At Preqin we currently track 2500 institutional investors active in hedge funds with further growth in the institutional presence in the asset class expected over 2010.
We have identified 235 institutional investors which are planning their maiden investment in hedge funds over the next 12 months. The growth in the institutional market over 2010 will be driven by private sector pension funds with 35% of all investors actively considering their first investment in hedge funds coming from this sector. Private sector pension funds are one of the more recent entrants into the asset class – as these pension plans witness their peers success in hedge funds they are beginning to turn to the asset class themselves for capital preservation and diversification. There will also be strong growth in the numbers of public pension funds (25% of all institutions considering their hedge fund investment in 2010), endowments (11%) and family offices (8%) entering the asset class over 2010.
For more information on institutional investors in hedge funds, please see Preqin's Hedge Investor Profiles.