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Hedge Fund Investment Consultants and Hedge Fund Investors - January 2015

by Pierre Papet

  • 26 Jan 2015
  • HF

2014 proved to be a relatively turbulent year for the hedge fund industry, with CalPERS withdrawing from the hedge fund space and recent criticism of the apparent under performance of hedge funds compared to the equity markets. Initially, there was general industry concern as to whether investors were losing faith in the asset class as a collective. For now at least, this does not seem to be the case; according to the December 2014 issue of Preqin’s Hedge Fund Spotlight, 46% of fund managers believe that CalPERS’ attitude towards hedge funds will have no effect on industry assets under management. There are in fact more US-based public pension funds allocating capital to hedge funds than ever before, and with private wealth also paving the way for industry growth, it appears investors are continuing to recognize the value of hedge funds both as part of a diversified portfolio and as a source of risk-adjusted returns.

Preqin currently tracks 297 investment consultants that offer services covering the hedge funds asset class. As one of the most utilized asset classes, along with private equity, the hedge fund asset class possesses a sizeable capital base; hedge fund investment consultants on Preqin’s Hedge Fund Online service possess median hedge fund assets under advisement of $1bn. The majority (66%) of hedge fund investment consultants are based in North America, with Europe hosting 26% of consultants. With regards to the nature of their service, hedge fund investment consultants tracked by Preqin offer discretionary only (7%), non-discretionary only (39%) and both discretionary and non-discretionary (54%) services.

One of the largest investment consultants in terms of hedge fund assets advised is California-based Cambridge Associates, with $32.3bn in hedge fund assets under advisement. The investment consultant advises on all strategy types, including long/short equity, and considers investments on a global scale.

Despite recent issues, the hedge fund industry is not presently in the early stages of demise, with the asset class still being of interest to consultants and investors alike, and with regions such as Asia slowly increasing in importance within the space. In Q3 2014, Cambridge Associates released a report looking into the nature of the Asian hedge fund industry. In summary, the report, ‘Investing in Asian Hedge Funds: Opportunities and Challenges,’ which was released almost simultaneously with CalPERS’ announcement to withdraw from hedge fund activity, finds that Asia-focused hedge funds offer promising long-term potential. The region continues to expand its existing framework, with the more favoured strategies within this space being long/short equity and macro strategies. It will be interesting to see what role investment consultants will play in this space in the future, not just in Asia but on a global scale.

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