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Public pensions top list of $1-billion-plus hedge fund investors

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Public pension funds remain the largest contributors to hedge funds among institutional investors that allocate $1 billion or more to the vehicles, according to a new report.

Preqin Ltd., New York, published this finding in “Hedge Fund Spotlight May 2013.” Preqin’s Hedge Fund Investor Profiles service contains 176 profiles for investors with more than $1 billion invested in hedge funds (excluding fund of hedge funds managers). These investors represent more than $550 billion in combined capital allocated to hedge funds.

Public pension funds account for 29 percent of the capital allocated to hedge funds among $1 billion-plus hedge fund investors, the report shows. Private sector pension funds account for an additional 15 percent of market share.

“Most of [the] public pension funds are based in North America, with the largest public investors currently allocating more than $10 billion to hedge funds,” the report states. “Private sector pension funds also represent a significant 15 percent of total capital, and this investor group has the highest number of investors (43) with $1bn or more allocated to hedge funds.”

The market shares of other (capital-weighted) $1 billion-plus investors break down as follows in the report:

12 percent—wealth managers

12 percent—asset managers

9 percent—endowment plans

7 percent—sovereign wealth funds

6 percent—insurance companies

4 percent—banks

4 percent—foundations

2 percent—family offices

1 percent—other

North American-based institutions contribute 67 percent of total capital invested by $1bn-plus hedge fund investors, the report states. The survey observes differences between hedge fund investors in this group and other hedge fund investors.

“A striking difference between the two groups is that whereas only 9 percent of these [$1 billion-plus] investors solely invest through funds of hedge funds, 34 percent of all other institutional investors only use multi-manager funds for their hedge fund allocations,” the report states. “These larger investors tend to have more internal resources dedicated towards hedge funds, giving them the platform and expertise to construct their own single-manager portfolio, rather than relying on the expertise of fund of hedge funds managers.”