Data taken from Preqin’s latest research report on the institutional market at the tail end of 2010 reveals that there is nearly USD100bn of institutional capital earmarked for hedge fund investment which they have yet to allocate to the asset class.
This capital will come from investors which have recently entered the asset class as well as existing investor’s increasing their allocations to the asset class.
All groups of investors in the Preqin study, except insurance companies, have increased their allocations to hedge funds from 2009-2010. The average increase across all investors is 1.2 per cent of total assets under management.
Much of this new capital could be directed to single manager funds, as Preqin has also noted a continued move away from funds of funds for many investors.
All groups of investors in the report have cut their exposure to funds of hedge funds in favour of direct investments over 2010.
Funds of funds still, however, remain a popular investment option for many institutional investors – for instance approximately 50 per cent of all pension funds have portfolios which consist solely of funds of funds.
Endowment plans report the lowest use of funds of hedge funds within their holdings – just ten per cent of all endowments on the Preqin database have a funds of hedge funds only portfolio.
Insurance companies have displayed one of the greatest movements to a direct style of investment over the past 12 months – from 17 per cent in 2009 to 30 per cent today. Delta Lloyd, the Dutch insurance company which has been investing in hedge funds since 2000 through a combination of both funds of funds and direct investments, will now be shifting all of its allocation to direct investment following the ongoing liquidation of its funds of funds investments.