Preqin research shows that a relatively equal proportion of single-manager hedge funds are based in New York City versus the UK (19.2% and 19.3% respectively). Despite this, New York-based hedge funds have an average minimum investment level 65% higher than UK-based funds, which suggests that NY-based funds are catering for the more institutional-investor base than their UK counterparts. At present, appetite is still much higher for funds based in North America than in Europe, with 45.2% of investors preferring to invest in funds headquartered in North America compared to 23.3% showing a preference for European-based funds.
However, with three quarters of investors now seeking greater liquidity in their hedge fund portfolios than they did previously, as reported by Preqin in September 2011’s Liquidity Report, this could soon change. UK hedge funds offer considerably greater flexibility to their investors compared with funds operating out of New York. UK hedge funds have an average redemption frequency of less than half that of their New York equivalents, with the average in New York being 3.22 months, compared with 1.42 months in the UK. Moreover, of the funds that have a lock-up period the average for New York-based funds is 10 months, whereas it is just 6 months in the UK. These statistics suggest that the average hedge fund in the UK offers a great deal more liquidity to investors than the average fund based in New York. Furthermore, whilst there is little divergence in the average management fee (1.64% in New York cf. 1.61% in the UK), the average performance fee among New York-based hedge funds (19.86%) is higher than that of UK-based vehicles (19%).
As investors are increasingly seeking better fund terms in a toughening economic climate, the more favourable and flexible conditions offered by UK-based hedge funds may allow them to more effectively compete with their New York cousins in attracting investor inflows in the future.