Hedge Funds Top Choice for Factor Exposures

Institutional investors are increasingly turning to factor investing—and hedge funds are by far the most preferred route, according to Citigroup.

In a survey of investors representing close to $1 trillion in total assets, the bank found that 81% were either currently investing in or looking to invest in smart beta and risk premia strategies—with 86% planning to increase factor investments over the next three years.

Hedge funds were the most preferred vehicle for factor investing, chosen by 69% of respondents.

citi smart beta Source: Citi Prime Finance Survey“As interest in risk premia solutions continues to rise, we expect hedge funds to play an increasingly important role in providing diversification through risk-aligned strategies,” said Daniel Caplan, Citi’s head of investor services sales for Europe, the Middle East, and Asia.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Half of respondents said they had more than $2 billion committed to hedge funds, while 63% allocated at least $1 billion. Just over half said they planned to increase their exposure to hedge funds over the next three years, targeting macro and equity long-short strategies in addition to risk premia.

Citi projected that assets under management in smart beta and risk premia funds will reach $1.2 trillion by the end of 2019—more than quadrupling since 2014, when assets totaled $265 billion. Smart beta exchange-traded funds (ETFs) are also on the rise, with 45 launched in 2015 alone—though only 8% of investors said they used ETFs to access factor exposure.

Investors overwhelmingly preferred multi-factor investing to single-factor strategies, and said they were attracted to the strategy because of perceived opportunities for volatility mitigation and return optimization.

“The adoption of style- and factor-based strategies can help investment managers identify determinant market shifts,” the report said, “and implement differentiated strategies away from consensus trades.”

Mark Barnard, Howard Hughes Medical InstituteThe Howard Hughes Medical Institute’s (HHMI) health care and endowment fund has lost its private investments chief.

Mark Barnard will step down as managing director of private investments for the $18.2 billion fund effective June 2016, the institute announced. He will stay on as a part-time advisor to the endowment through the end of November.

“It’s been an honor and a privilege to have worked with HHMI all of these years and been part of an investment team and created investment returns in support of the institute’s incredible mission of scientific research and education,” Barnard said in a statement.

Upon retiring from the Chevy Chase, Maryland-based fund, he said he will open “a new chapter in my personal and professional life.”

For more stories like this, sign up for the CIO Alert newsletter. 

Barnard has spent more than 20 years managing the medical research institute’s private investments portfolio consisting of global private equity, venture capital, real assets, and natural resources.

As managing director, he led a team of three directors and served as a member of the institute’s senior management team.

Previously, Barnard worked as an associate director at the Massachusetts Institute of Technology treasurer’s office for 10 years. There, he was responsible for managing real estate investments, according to his LinkedIn.

HHMI has named Greg DeNinno, current director of private investments, as Barnard’s successor. DeNinno has been with the institute since 2008 and focused on European private equity, venture, and small-cap buyouts.

The medical institute is also seeking an “experienced director” to add to the private investments team.

HHMI is led by “industry veteran”—and 2015 Power 100 member—Landis Zimmerman who previously headed up the University of Pennsylvania endowment.

Related: Baylor Scott & White Loses CIO