Nordic-based Investors Continue to Embrace Hedge Funds despite Reduced Numbers - February 2014

by David Corrigan

  • 18 Feb 2014
  • HF

In a 2012 blog, Preqin noted that dissatisfaction with hedge funds had caused some Nordic investors to redeem from the asset class, a trend that appears to have continued into 2014. In 2012, Preqin’s Hedge Fund Investor Profiles online service tracked 109 Nordic-based hedge fund investors, a number which has since decreased, with 83 investors based in the region remaining active in the asset class. Despite the net decrease in investors with an appetite for the asset class, it seems that those investors which have remained active in hedge funds are increasingly confident in allocating capital to the space.

Nordic investors that have remained active in hedge funds are those which tend to have a significant amount of capital to allocate, with the average total assets under management of these investors increasing to $10.7bn, from $10.3bn in 2012. This is likely to be a result of smaller investors with lower risk profiles having exited the asset class following a period of poor returns. For example, Norwegian Hull Club, a $360mn insurance company, exited the asset class in 2012 citing issues with risk, cost and liquidity.

For those investors still investing in hedge funds, confidence in the asset class seems to have remained steady over the past two years, with the amount of capital allocated to hedge funds by Nordic-based institutions increasing by 11%. Further to this, the average target allocation to hedge funds for Nordic-based investors currently stands at 8.4% of total assets, a significant increase from the 2012 average of 7.5%. One such investor which has increased its allocation to hedge funds is the €37bn insurance company, Varma Mutual Pension Insurance Company, which has increased its hedge fund allocation from 11% of total assets to 12%.

Swedish investors still make up the majority of Nordic-based hedge fund investors, accounting for 46% of all investors in the region. Other Nordic investors include investors based in Finland (25%), Norway (19%), Denmark (6%) and Iceland (4%). The main institutional investor types allocating to hedge funds are public pension funds (representing 19% of Nordic-based hedge fund investors), funds of hedge funds (19%), insurance companies (17%) and private sector pension funds (14%). Long/short equity and global macro are the most popular strategies among Nordic investors, with 53% and 46% of investors having a preference for these strategies respectively.

Although the number of active Nordic-based hedge fund investors has decreased in recent years, many investors in the region still appear to be strong backers of the asset class, ensuring a small growth in total commitments towards hedge funds since 2012. Those Nordic investors allocating to hedge funds look like they will remain prominent in the asset class moving forwards, with 19% of investors based in the region actively looking to make new hedge fund investments over the next 12 months.

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