Preqin’s Hedge Fund Investor Profiles currently tracks 415 UK-based institutional investors in hedge funds, the majority (60%) of which are located in London. Private pension funds are the most numerous among UK-based hedge fund investors, accounting for a quarter of all investors in the asset class, followed by fund of hedge funds managers (17%), wealth managers (14%), foundations (12%) and public pension funds (11%). Pension funds and foundations in the UK therefore account for 48% of the hedge fund investor universe, in contrast with the US, where pension funds and foundations account for only 35% of investors in hedge funds.
In terms of capital invested in hedge funds from investors based in the UK, private sector pension funds lead the pack by a large margin, accounting for 54% of all institutional capital invested in hedge funds from the UK (excluding funds of hedge funds). Banks and public pension funds follow with 9% of the capital share each, followed by wealth managers (8%), asset managers (7%) and foundations (6%).
Forty-seven percent of UK-based investors include diversified strategies in their hedge fund preferences. Long/short equity funds (42%) and macro funds (37%) are the next preferred strategies, followed by multi-strategy (32%) and long/short credit funds (23%). Managed futures/CTAs attract capital from 21% of UK-based investors.
Forty-eight percent of UK-based investors have a preference for hedge funds that provide exposure to Europe, while only 28% seek exposure to North America. Almost one in five UK investors (19%) are attracted to the investment potential across emerging markets and 16% look to allocate capital to Asia.
The issue of transparency and liquidity has always been an important consideration for an investor’s hedge fund allocation strategy, and UK-based investors are no different, with 19% currently citing a preference for the liquidity and enhanced transparency offered by UCITS-compliant funds. This proportion is an increase on the 11% of UK-based investors who have recorded g a preference for UCITS-structured hedge funds in 2014.
With the UK referendum on EU membership on the horizon, it will be interesting to see whether this trend will continue, and whether more UK-based investors will look to UCITS hedge funds to fulfil their alternative investment mandates.