Study: Hedge Fund Investment to Spike at $195 Billion

(July 12, 2011) — Investors are prepared to allocate up to $195 billion to hedge funds in next 12 months, according to Preqin’s latest hedge fund investor study, based on information from its database of 2,700 investors.

“With nearly a third of the investors on the Preqin database having fixed plans for new investments in the next 12 months, and many others investing opportunistically or considering new allocations, the future is looking bright for the industry,” stated Katherine Johnson, the report’s author. “Investors could invest up to $195 billion in the next 12 months, with up to 2,000 funds currently being sought. Funds of hedge funds, pension funds, insurance companies and a large number of other investor groups are looking to increase their hedge fund portfolios in the next year. These investors are seeking a wide range of strategies and structures and therefore it is vital that managers have the best intelligence on these investors if they are to gain a slice of this capital.”

Of the investors cited in the study, 47% are seeking opportunities to invest in funds of hedge funds, contrasting with recent research by Citi Prime Finance that showed that following the global financial crisis, institutional investors have shifted more to direct investing in hedge funds. The report asserted: “Many pension and sovereign wealth funds began their hedge fund investing program using fund-of-funds as a way to initially access the market and learn about the space. As their education advanced, many chose to begin shifting toward a direct investing program. This was already occurring by 2006-2007, but the financial crisis and Madoff scandal accelerated this trend…”

Meanwhile, Preqin’s research showed that Europe-based investors have the greatest appetite for new commitments; 45% are seeking new opportunities, compared to 29% of North American, and 32% of Asia and Rest of World-based investors. Furthermore, Preqin found that 87% of investors planning to add to their hedge fund portfolios plan to include long/short equity funds.

While emerging managers have grown in popularity, with 28% of all investors stating that they are more open to marketing from emerging managers than they were one year ago, most (60%) investors will focus on managers with a track record of at least three years. Just over one-third will consider vehicles with less than $100 million in assets under management.