Hedge fund assets under management have increased over the past 12 months to some $3.2 trillion, despite mediocre performance, thanks in part to big investments from institutional investors, Preqin reported in a new study.
At present, 227 institutional investors have allocated at least $1 billion to hedge funds, up from 203 that did so a year ago. These investors — Preqin’s $1 billion club of institutional investors — have invested an aggregate $735 billion, a 13% year-over-year increase.
Preqin, the alternative investment data provider, reported that public pension funds are the largest $1 billion club allocators, with 25% of capital invested by this group.
During the past year, notable withdrawals by high-profile pension schemes — U.S.-based CalPERS and Netherlands-based PFZW — were balanced by $1 billion-plus investments by Employees’ Retirement System of Texas and California State Teachers’ Retirement System.
Following is a capital-weighted breakdown of institutional investors in hedge funds, according to Preqin:
- Public pension funds, 25%
- Sovereign wealth funds, 16%
- Private sector pension funds, 15%
- Asset managers, 12%
- Endowment plans, 9%
- Insurance companies, 8%
- Foundations, 5%
- Banks, 4%
- Wealth managers, 3%
- Family offices, 2%
- Other, 1%
North American institutions account for 61% of $1 billion club hedge fund investment capital, up seven percentage points from 2014.
In contrast, the proportion of hedge fund capital invested by Europe-based entities fell to 21% in May from 28% a year earlier, a decrease of $30 billion.
The report said stricter regulations have challenged many of the biggest European institutional investors and the amount they can commit to hedge funds.
European insurance companies, too, have had to think twice about their hedge fund allocations. The Solvency II regulation, which will come into effect next January, will levy capital charges of 49% on hedge fund investments.
Asia/Pacific-based investors in the $1 billion club represent 10% of hedge fund capital, and sovereign wealth funds in the rest of the world account for 8% of total capital invested in hedge funds.
Preqin noted that $1 billion club members are more inclined than investors outside the club to use a mixture of direct hedge funds and fund-of-funds structures, 47% versus 34%.
Only 8% invest solely through funds of funds, mainly because big investors have both the resources and the experience to manage their own investments.