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Wealth Managers Investing in Hedge Funds – June 2013

by Claire McNeil

  • 19 Jun 2013
  • HF

Preqin currently tracks 369 wealth managers that are actively investing in or considering investing in hedge funds. The majority (57%) of these investors are based in North America, a third are based in Europe and a tenth are based in Asia or other regions. Of the wealth managers in North America, 97% are US-based; within Europe, the majority are based in the UK or Switzerland, accounting for 44% and 34% respectively. Forty-three percent of the wealth managers active in hedge funds based outside of North America and Europe are located in Singapore and 16% in Hong Kong.

Most (79%) wealth managers will consider hedge fund investments on a global basis, 32% of wealth managers include North America as an investment preference and 19% include Europe.

Diversified funds are the most favoured hedge fund strategy among wealth managers, which is likely due to the fact that many wealth managers utilize hedge funds in an attempt to smooth portfolio performance via diversification. A focus on diversified funds also allows wealth managers to focus upon the current opportunities in the hedge fund space and select hedge funds based upon the needs and aims of clients as well as considering how best to diversify portfolios in terms of their holdings in other asset classes. Long/short equity is also a commonly preferred strategy, being a preference for 42% of investors, as are macro, managed futures/CTA and long/short credit strategies, which are a preference for 26%, 20% and 14% of wealth managers respectively.

The 2013 Preqin Investor Network Global Alternatives Report cited that 80% of hedge fund investors are looking to either increase or maintain their allocations to hedge funds in the next 12 months, and only 20% are looking to decrease their allocations. It will be interesting to see whether wealth managers follow suit, and how they continue to adapt to initiatives such as UCITS and changing regulation in 2013, including the Dodd Frank Act and the European AIFMD (Alternative Investment Fund Managers Directive).

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