Although asset outflows dominated news about the hedge fund industry in 2016, the number of investors that allocated $1 billion or more to the sector increased, and now stands at 242 institutions, according to a new report from alternatives data provider Preqin.
And the number of hedge managers with assets of $1 billion or more also increased, despite difficulties besetting some of the largest ones, Preqin reported.
Billion Dollar Club: Investors
During the 12 months to June 2017, 36 institutional investors entered the Billion Dollar Club and 28 exited. Collectively, the 242 investors allocate $805 billion to hedge funds, 24% of total hedge fund assets, and up 6% from the previous year.
Public pension funds, which account for 28% of capital allocated by the Billion Dollar Club, had the highest number of new entrants to the club, 11, over the 12-month period.
The research showed that sovereign wealth funds are becoming increasingly important members of the club. Their number stands at eight, and they represent 17% of capital within the elite investor group. According to Preqin, the ramifications of the investment decisions of this small group of investors can significantly influence the industry.
North America accounts for 61% of capital invested in hedge funds by club members, trailed by 21% for Europe-based investors and 9% for those based in Asia.
Billion Dollar Club members typically allocated 16% of their total assets under management to hedge funds, compared with 14.5% among all other investors.
However, this represents a decrease from June 2016, when club members’ average allocation to hedge funds was 16.8%. Overall, Preqin said, 37% of members decreased their allocations in the past year, while 28% increased them.
Club members expect average returns of 6%, compared with 7% for all other investors. As well, they require underlying funds to have $1 billion in assets under management and a 3.1-year track record, compared with other investors’ requirements of $367 million under management and a 3.5 year track record.