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Private Wealth Investors, Endowment Plans and Foundations in Hedge Funds

by Ben Judge

  • 16 Mar 2016
  • HF

Preqin’s Hedge Fund Online service currently tracks 951 private wealth investors (consisting of family offices and wealth managers) and 1,516 endowment plans and foundations that are actively investing in the hedge fund asset class. While there are some similarities in how these investors operate in the hedge fund space, there are clear differences in their investment strategies and preferred routes to market.

All four investor types favour North America-focused funds over any other region, which is unsurprising given that North America is home to the majority of these investor types. Eighty-five percent of endowment plans and foundations indicate a preference for North America-focused hedge funds, while 60% of family offices and 50% of wealth managers have a preference for the region. Furthermore, endowment plans and foundations are more likely to target global opportunities: 92% implement a global approach to investing in hedge funds, compared with 64% of private wealth investors.

As shown in the chart above, further contrasts in the strategies of these investors can be seen in their preferred routes to market. More endowment plans and foundations invest through funds of hedge funds, while private wealth investors, particularly family offices, prefer a more direct approach: a much larger proportion (71%) target single-manager funds.

In terms of strategy, long/short equity strategies are the most prominent across all four investor types, yet a larger proportion of foundations invest in equity strategies than wealth managers (78% and 50% respectively). Both investor groups have exposure to credit strategies, which can provide less volatile returns; however, just over a third of endowment plans and foundations look to invest in credit strategies compared with a smaller proportion (21%) of private wealth managers.

Despite their varying approaches to investing in the hedge fund market and the disappointing returns experienced in 2015 by investors and managers alike, these investors are likely to be active in the hedge fund market over 2016; Preqin’s Hedge Fund Online service contains detailed information on 90 fund searches and mandates from just these four investor types.

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