Several high-profile institutional investors have cut hedge funds from their portfolios over the past two years, raising the question of whether a mass exit from the sector is underway.
No, says alternatives data provider Preqin in its latest report on institutional investors that have committed more than $1 billion to hedge funds.
Indeed, the $1 billion club has grown by a net 11 participants over the past year, despite a defection by the $51 billion New York City Employees’ Retirement System in April, Preqin’s research showed.
In 2014, California Public Employees’ Retirement System, the nation’s biggest public pension fund, slashed its allocation to hedge funds.
In its new report, Preqin said 40 institutions had joined the $1 billion club, while 29 had fallen out of the group after reducing their exposure to the hedge fund industry.
Private- and public-sector pension funds together represent just under half of new entrants to the club.
According to the report, the combined sum of capital invested by the $1 billion club rose from $735 billion as of May 2015 to $763 billion a year later, a 4% increase.
Although investors in this elite group account for just 5% of all active hedge fund investors, they represent 24% of the total $3.1 trillion in assets under management held by the industry.
“Despite the small number of participants in the hedge fund investor $1 billion club, they are mighty in influence and represent nearly a quarter of all capital at work in the industry,” Preqin’s head of hedge fund products, Amy Bested, said in a statement.
“As such, it is understandable why the redemptions of high-profile institutions such as NYCERS in 2016 and CalPERS in 2014 may attract headlines; these investors are the cornerstone of the asset class and a potential mass exit could herald worrying times for hedge funds.”
Bensted said the outlook for 2016 remained positive. “With large resources and the continued support of the hedge fund industry, the $1 billion club is likely to remain influential and active.”
Public pension funds represent 27% of the total capital of billion-dollar investors. As of May, these investors had $208 billion allocated to the industry, up from $190 billion 12 months ago.