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Pension Funds and Family Office Investors Still Show Large Appetite for Hedge Funds – March 2015

by Michael Brown

  • 18 Mar 2015
  • HF

Following the departure of a number of high profile pension funds from the hedge fund space over the past six months, specifically California Public Employee’s Retirement System (CalPERS) and Netherlands-based Pensioenfonds Zorg en Welzijn (PFZW), Preqin’s Hedge Fund Investor Profiles offers an insight into the current attitudes of pension funds towards the asset class and shows that the wider pension fund and family office universe still have an appetite for hedge funds.

When looking at the amount of capital currently allocated to the hedge fund asset class (excluding capital provided by fund of hedge funds managers), public pension fund capital accounts for 21%, while private pension funds account for 20%. However, while public pension funds issued 18% of active future searches on Preqin’s Hedge Fund Investor Profiles, a figure relatively in proportion to the volume of capital provided by those investors, private pension funds issued only 5% of active searches, reflecting a much more conservative outlook, and a reduction from 8% in March 2014. The proportions of active searches by investor type (excluding funds of hedge funds) are shown in the chart below.

Last month, $20bn public pension fund San Francisco Employees’ Retirement System issued a request for proposal for a hedge fund consultant, prior to making a maiden allocation of 5% of total assets to the hedge fund space. The hiring of managers is expected to take place at the end of 2015 through to early 2016. This move, and others like it, suggests that despite some high profile peers redeeming completely from the asset class, public pension funds as a whole remain optimistic in their outlook for hedge funds.

Another type of investor with a disproportionate amount of active searches for hedge fund managers, relative to the amount they invest in the asset class, are family offices. Single- and multi-family offices (again excluding fund of hedge funds managers) account for a combined 3% of total capital allocated to the asset class, however, they account for 22% of current searches for hedge fund managers, revealing a high regard for hedge funds among investors of that type.

Despite some high profile public pension funds divesting their hedge fund holdings, it does not seem to be part of a wider trend among the investor type, nor has it impacted on the attitudes of other institutional investor types in the space. Preqin data indicates that investors such as pension funds and family offices are actively seeking new opportunities within the hedge fund space and could indicate a revival of confidence in the asset class among these investors.

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