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Institutional investors revolutionise hedge fund industry

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Hedge fund managers are altering their fees, risk adjustment procedures and strategic offerings to attract institutional investors according to the latest Prequin study.

Institutional capital is at an all time high within the sector, and 85% of the 60 hedge fund managers interviewed believe that it will increase even more over the next 18 months.

The study showed that 46% of managers have put more risk management procedures in place as a result of having more institutional investors in their funds, while 42% have reduced the fees charged on funds. In addition, 21% have introduced alternatives to commingled funds to attract or maintain institutional interest,57% of respondents stated that over half of their assets come from the institutional sector, and 47% of managers have seen an increase in institutional capital over the past three years, increasing to 56% over five years.

Almost half of those surveyed plan to market specifically to the institutional sector in the coming 12 months, while some 15% expect to launch UCITS-structured hedge funds. Institutional investors are increasingly keen to take advantage of the transparency and liquidity requirements of these fund structures.

‘The consensus is clear: hedge fund managers are witnessing large inflows of capital from institutional investors, and are adapting their fund strategies and marketing accordingly," says Amy Bensted, manager, hedge fund data. "Smaller funds continue to find it more difficult to attract institutional investors, as many do not have sufficient assets under management to be a viable investment option for some of these investors. However, most fund managers are expecting more money from institutional coffers over 2011 and into 2012, suggesting that the proportion of institutional capital in the sector is due to grow even more over the next 18 months."

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