Midsize Hedge Funds Outperformed in 2013

Different Size Preferences

“Much of the capital inflow into the hedge fund industry over the past few years has been to just the largest funds, with investors looking for the proven track record and experienced investment teams that these larger hedge fund managers often provide,” Amy Bensted, Preqin’s head of hedge fund products, said in a statement.

That appears to be changing this year, Bensted said, as investors are looking at a variety of fund sizes for investment. Different hedge fund investors have different return objectives and risk appetite.

“Performance remains a key factor in the selection process and Preqin’s latest research demonstrates that it is not always the largest funds that are providing the best performance in terms of risk and return,” she said.

Preqin found that 48% of hedge fund investors surveyed said returns were a key factor when looking at a fund manager. In particular, 21% said the potential for better returns from smaller managers was a key reason for preferring funds with less than $1 billion in assets.

The research showed that investors were looking across a wide range of fund sizes in 2014. Funds in the $1 billion-$5 billion group were the most sought after, with 57% of institutional investors looking for funds of that size in 2014.

Fifty-two percent of investors were seeking funds with $100 million to $499 million in assets, and 47% were interested in funds with $500 million to $999 million.

“Those investors which are looking to move away from investing in just the largest funds, but without taking on too much volatility, may choose to look toward investing in those funds with more than $500 million in assets,” Bensted said.