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Wealth Managers Investing in Hedge Funds – February 2013

by Claire McNeil

  • 27 Feb 2013
  • HF

Wealth managers, which provide fund selection expertise on a discretionary and non-discretionary basis for private and retail clients, have been significant backers of hedge funds since the end of the 1990s. Preqin tracks 342 wealth managers with current investments in the asset class. Although wealth managers are often not bound by the legislative restrictions that are imposed on some institutional investors such as public pension funds and insurance companies, they have faced the same pressures from their clients to look for funds with greater liquidity and transparency as other providers of investment management services over the past couple of years.

The current mean allocation to hedge funds of the wealth managers that invest in the asset class is 14%, below the average target allocation of 14.8%. Over the course of 2013, 15% of wealth managers have indicated they are actively seeking new funds. Most commonly these investors are searching for direct investments in single manager funds, with 80% of wealth managers indicating this as a preference. The liquidity and transparency benefits of the UCITS regime is also proving attractive for the wealth management audience, with 18% of those wealth managers searching for funds in 2013 specifying UCITS as a structure of interest.

The average minimum assets under management requirement of wealth managers when looking at hedge funds is $152 million with a minimum track record requirement (on average) of 3 years. Although in theory over 50% of wealth managers are open to the idea of investment in emerging managers, in practice the allocations made by wealth managers over the past few years, like many institutional investors, have tended towards the larger fund management groups as their clients seek the safety of the brand name hedge fund.

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