Large health systems based in the US can be an important source of capital for hedge fund managers as many of these have the financial power to make substantial allocations to the asset class. These investors are starting to understand the importance of their investment portfolios and are looking for ways to enhance performance. Interest in hedge funds amongst this group of investor has been growing in recent years as they aim to increase diversification and boost returns.
The majority of the largest health systems prefer to invest in hedge funds directly through single managers. An example of this is the USD 4 billion Adventist Health System which currently allocates approximately 25% of its total assets under management to over 50 hedge fund managers.
In terms of strategic preferences, the majority of US health systems have open mandates and will look to gain exposure to a variety of strategies. Overall, long/short equity and multi-strategy are the most common fund strategies in the portfolios. The USD 9 billion Cleveland Clinic Foundation is an example of an investor with a diversified strategic outlook and it considers a wide range of hedge fund strategies on an opportunistic basis. US health systems are taking a very optimistic approach to the hedge fund industry, with many aggressively augmenting their portfolios in 2012. For instance one prominent US health foundation which manages over USD 5 billion, has told Preqin that it has more than doubled its allocation to the asset class over the previous 12 months.
It is expected that the largest health systems will continue to be active in hedge funds over the course of 2012. Many of these investors have large allocations to hedge funds and an opportunistic approach to investing meaning that they could be attractive targets for managers seeking institutional capital over the next few years.