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Middle East-Based Investor Appetite for Hedge Funds Shows No Signs of Abating – June 2014

by Nat Auld

  • 02 Jun 2014
  • HF

Of the 4,600 active investors in hedge funds tracked by Preqin’s Hedge Fund Investor Profiles, investors based in the Middle East make up just 1.2% of investors globally. However, what they lack in numbers, they make up for in size, with average total assets under management (AUM) of over $46.5bn, significantly higher than the average AUM for all investors globally, which stands at $13.3bn. Taking into account the fact that the average Middle East-based investor allocates 10.5% of its total AUM to hedge funds, it is clear that their importance in the industry should not be ignored.

The large average size of investors based in the Middle East can be attributed to the fact that the most common investor type based in the region is sovereign wealth funds, which make up 13% of all hedge fund investors based in the Middle East. Other significant types of investors in the region are investment companies, wealth managers and family offices. Looking more closely at the various countries in the region, it becomes apparent that the United Arab Emirates is a key location for investors in the hedge fund space, with it being home to 38% of investors within the Middle East. Other key countries include Kuwait and Saudi Arabia, each accounting for 14% of investors, and Bahrain, which accounts for 13%.

It is clear that investors based in the Middle East have a greater tendency for investing in single-manager hedge funds than in funds of hedge funds, with over half (54%) of investors in the region targeting only single manager funds. Further to this, 37% of these investors will invest in both single manager and fund of hedge funds vehicles, while just 9% look solely to target funds of hedge funds. In terms of geographical preferences, the vast majority of Middle East-based investors (91%) will consider investments globally, while 36% of these investors have specified a preference for investing in emerging markets. A significant proportion of investors also seek investment opportunities closer to home, with 27% specifically targeting the Middle East for investments.

The appetite for investing in hedge funds among Middle East-based investors looks set to continue going forward, with 11% of these investors known to be actively seeking new investments in the asset class over the next 12 months. All of these investors are seeking global exposure, with 60% indicating a specific preference for targeting emerging markets. Although investors based in the Middle East will be looking at a range of hedge fund strategies over the coming year, long/short equity is the most targeted, with 60% of these investors including the strategy in their searches.

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