Allocations from institutional investors caused hedge funds of funds assets to grow by 30% in the 12 months ended December 2003, according to a survey by consulting firm Watson Wyatt and Global Investor magazine.
That growth corresponds to a rise of more than $41 billion invested in funds of funds, with most of the new money coming from central banks, pension plans, and governments. In Asia, insurance companies accounted for 20% of the inflow.
Globally, the five largest fund-of-funds operations belong to Man Group plc, Permal Group, Union Bancaire Priv?e, Ivy Asset Management, and Goldman Sachs Hedge Fund Strategies Group, the survey indicated. Information was gathered about funds of funds because these are the hedge fund vehicles that have proven to be of most interest to institutional investors.
About 155 fund managers participated in the study, which also covered private equity, real estate, and commodity funds. It ranked the largest players in each category. For instance, in terms of amounts of advisory assets in private equity, Hamilton Lane Advisors was number one.
“The message of increasing diversity in pension fund assets to both reduce risk and increase returns is definitely getting through,” said Nick Watts, European head of investment consulting at Watson Wyatt, in a prepared statement. “Increasing focus on risk in the pension fund and the source of that risk, combined with the need to reduce deficits through increased returns, has accelerated the trend toward investment in alternatives.”
In addition to institutional investors, ultra-high-net-worth wealth managers and family offices are accelerating their adoption of hedge-fund-of-fund investments, according to a Prince & Associates survey of 653 family offices representing more than 34,000 families with $1.2 trillion in investable assets.
The survey concluded that while 45% of family offices invest in funds of funds today, a staggering 84% expect to do so in the next three years.