A recent Preqin study has highlighted that confidence is returning to the hedge fund industry following the financial crisis, with many institutional investors intending to continue to grow their hedge fund portfolios. Recent research has revealed that nearly a third of all hedge fund investors have fixed plans to invest in additional hedge fund vehicles over the next 12 months. As a result of these plans, it is estimated that there could be almost $200bn of new capital earmarked for hedge fund investments.
The most common investor type with plans to invest further over the next year are funds of hedge funds, with 54% of these firms intending to make new investments in the asset class. Public pensions are also likely to be active, with 36% of these investors looking for new hedge funds as well as insurance companies (35%), endowments (25%) and private pensions (24%). Long/short equity funds are the most sought after funds by investors looking to increase their exposure, with 87% of investors including this as a strategy preference. Global macro funds are also popular (64%), while 58% of investors are willing to take an opportunistic approach to fund selection.
Another interesting trend is that a preference for investing directly through single managers is growing amongst the institutional market. From investors who plan to increase their hedge fund allocation, 83% include direct investment as part of their strategy plans. As funds of hedge funds are the most prominent group, a large proportion of this capital will be via multi-manager vehicles; however it is also noticeable that a number of investors are moving away from funds of hedge funds in order to focus on direct investments. Despite this there is evidence of a recovery for funds of hedge funds following a difficult period, and 47% of investors plan to include allocations to these funds in the next 12 months.
Overall the study shows that the future is bright for the hedge fund industry, with many investors looking to increase their allocations to this area. All investor groups are expected to be active in the next 12 months and will be seeking a wide range of different hedge fund strategies and structures.