Pensions, Not HNWs, Driving Hedge Fund Growth: KPMG

Change is transforming the hedge fund industry, affecting product mixes and fee structures, markets and investor types, according to a report released Thursday by KPMG International, the Managed Funds Association and the Alternative Investment Management Association.

The report incorporated the views from an online survey of more than 100 hedge fund managers of sizes ranging from less than $500 million to more than $1 billion and representing approximately $440 billion of assets under management.

Eighty-four percent of respondents identified themselves as single fund managers and 16% as fund-of-funds managers.

The report said the hedge fund industry’s growth today was being driven largely by institutional investors rather than high-net-worth individuals. 

A majority of managers surveyed expected a significant shift in their primary sources of capital by 2020, with most saying it would come mainly from corporate and public pension funds.

Public pension funds and sovereign wealth funds together will account for at least a quarter of capital inflows into hedge funds by 2020, the report predicted.

“The days of hedge funds simply being an investment tool for high-net worth individuals are over,” said MFA’s president and chief executive Richard Baker said in a statement.

“Institutional investors like pension plans, university endowments and charitable organizations now make up nearly 65% of the industry’s assets. These diverse partnerships help local economies and underscore the important role alternatives play at both the macro and micro levels.”

Forty-six percent of managers said they would either alter their fund strategy or launch new products to attract capital from pension funds over the next five years.