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Go North: the Growing Opportunity in Canada to Raise Hedge Fund Capital – June 2015

by David Lobbins

  • 11 Jun 2015
  • HF

Compared to their US neighbours, Canada-based investors represent a relatively small part of the hedge fund sector, accounting for 4.1% of the total capital invested in hedge funds by institutions, compared with the 58.9% of all institutional capital invested in hedge funds coming from the pockets of US-based institutions. However, on an individual basis the average Canadian institution allocates $479mn to hedge funds, more than double the $231mn invested per institution in the US.

The mean allocation to hedge funds of institutional investors in Canada is 10.3% of their portfolio, an increase of over three percentage points from 2012. Today, on average, a Canada-based institutional investor invests this capital in between 11 and 17 hedge funds. The Canadian institution that invests the greatest amount in hedge funds is Ontario Teachers' Pension Plan, with more than $12bn invested in the asset class.

There are a variety of institutions based in Canada that allocate capital to hedge funds. The leading group, pension funds (both private and public), account for approximately a third of all institutional investors in the country. Fund of hedge funds managers are the next leading group comprising 14% of all investors in Canada.

Long/short equity funds are the strategy most favoured by Canada-based investors, sought by 63% of institutional investors in the country. This is followed by multi-strategy (41%), macro (41%), managed futures/CTA (30%) and event driven strategies (30%). Although nearly a third of Canada-based institutions invest in event driven funds, this is a markedly smaller proportion than that of their US counterparts. Forty-five percent of US-based investors allocate capital to event driven funds. This disparity may indicate that Canada-based investors prefer more liquid hedge fund strategies and are less likely than their US peers to seek the advantage of pricing inefficiencies that could take place before or after a corporate event.

The 107 Canada-based institutional investors in hedge funds tracked by Preqin on Hedge Fund Investor Profiles play a small but significant role in the global hedge fund industry. With a large range of investors based in the country, allocating significant amounts of capital across a range of strategies, there are plenty of possibilities for fund managers willing to travel north from the home of hedge funds, the US.

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