Institutional Investor Appetite for Event Driven Hedge Funds – November 2012

by Graeme Terry

  • 26 Nov 2012
  • HF

Event driven hedge funds represent one of the most commonly used hedge fund strategies and these funds remain prominent in institutional investors' hedge fund portfolios. Preqin's Hedge Fund Investor Profiles database currently tracks 1,353 institutional investors that show an interest in event driven hedge fund strategies.  Of these investors, 964 are based in North America, 278 are based in Europe and 111 are based in Asia and Rest of World. Event driven hedge funds account for approximately 10% of all single manager hedge funds.

Event driven strategies tracked by Preqin include event driven, distressed, risk/merger arbitrage, special situations and activist strategies. Pure event driven funds are the most commonly used strategy within this group with 72% of event driven investors investing in this strategy. Distressed hedge funds are also popular with 56% of event driven investors indicating an interest in the strategy. The remaining event driven strategies are less popular, with 30% of investors indicating an interest in risk/merger arbitrage funds, 19% investing in special situations hedge funds and only 3% targeting hedge funds pursuing an activist strategy.

Fund of hedge funds managers are the investor group most likely to invest in event driven strategies with 60% of funds of hedge funds indicating an interest in the strategy. Swiss-based fund of hedge funds manager Fundana is an example of a fund of hedge funds that will allocate to event driven hedge funds over the coming 12 months. Event driven strategies are also popular with foundations and endowment plans, with 44% and 39% of investors showing an interest in the strategy respectively. These funds are slightly less popular among public pension funds (29% of investors indicate an interest in event driven hedge funds), private sector pension funds (20%) and family offices (20%).

Overall, the outlook looks fairly positive for event driven hedge fund managers as many institutional investors continue to include event driven hedge funds as part of their portfolios. Australian superannuation scheme Media Super is an example of an investor that is considering allocations to event driven hedge funds over the coming 12 months. The current uncertain financial climate presents opportunities for event driven hedge fund managers and these managers can be successful at obtaining mandates over the coming year if they can demonstrate strong performance.

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