Hedge fund investors are keen to commit to the asset class, with more than half making two or more investments on average per year, a Preqin study reveals.
Just under one-third make between two and three new investments per year, while 17% make between six and ten.
The study also found that institutional investors can be a long-term and stable source of capital for hedge funds; over one fifth of investors are keen to keep capital invested in a fund for over five years and 16% state that this is the minimum time for which they will stay invested in a fund.
33% of investors invest in a hedge fund for a minimum of six months to one year
32% have a minimum holding period of 25 months to three years
The majority of investors make at least one redemption a year
39% of investors make redemptions due to performance concerns
20% make redemptions due to an internal change in portfolio strategy
41% of investors use consultants as one method of sourcing new hedge funds
38% look to source new funds directly from proposals received from fund managers
66% will invest within six months of first viewing the fund proposals
20% of investors stated that returns were the most significant factor when looking at new fund investment proposals
20% stated that the source of returns and the strategy were the most important factor
“Flow of capital through the hedge fund portfolios of institutional investors is very dynamic, with the majority of investors making regular redemptions and replacements of hedge funds in their efforts to boost portfolio returns, diversify holdings and gain access to managers providing elusive alpha,” says Amy Bensted, head of hedge fund research at Preqin. “Therefore managers seeking new capital can expect good opportunities from even those investors that have filled their target allocations to hedge funds, as well as investors with unfilled allocations to the asset class. Institutional investors are also good long-term sources of capital; almost half will keep their capital in a fund for more than three years if the vehicle performs as projected. However, many investors have been disappointed by the returns from their hedge fund investments over the past year and, as such, those managers with a strong track record and proof of solid returns are likely to be the most successful in attracting institutional capital in the coming year.”