Sovereign wealth funds are increasingly seeking out investment opportunities with UK hedge funds, a trend that might signal better times ahead for the sector. According to the latest survey of administrators by Hedge Fund Manager Week, much of the fresh investment coming into the hedge fund sector, which now represents a total of USD2.9trn in single-manager fund assets, is coming from these state investment vehicles.
The survey says that much of their investment is being made through funds of hedge funds, whose assets have grown to USD1.4trn following a 10 per cent increase in the six months to the end of April, compared with 9 per cent for single-manager funds.
The sovereign wealth funds are said to be allocating more capital to alternative investments as they seek to maximise their investment returns on capital, and to have targeted an increase in their allocations to alternatives from 1 to 10 per cent.
Sovereign wealth funds have played an important rile in shoring up the capital base of leading US and European financial institutions over the past few months. Last week Barclays announced that the Singapore government investment corporation Temasek and China Development Bank would increase their investment in the bank, alongside fresh funds from Qatar's royal family.
The increased interest in hedge fund investment by these state-run investment funds may be an indication of a brighter outlook for hedge funds, given the prestige of an endorsement by a sovereign investor.