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USD1bn Club investors allocate three-quarters of a trillion dollars to hedge funds

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The USD1bn Club, the group of institutional investors which has committed more than USD1 billion to hedge funds, has seen a net growth of 11 participants since 2015, and now includes 238 members, according to Preqin.

Forty institutions have joined this group of the largest hedge fund investors, while 29 have fallen out of the USD1bn Club after reducing their exposure to the industry.
 
Although investors in the USD1bn Club account for just 5 per cent of all active hedge fund investors, they represent just under a quarter (24 per cent) of the total USD3.13 trillion AUM held by the industry; the combined sum of capital invested by the USD1 billion Club has risen by 4 per cent, from USD735 billion as of May 2015 to USD763 billion a year later.
 
Public pension funds account for over a quarter (27 per cent) of total USD1 billion Club capital committed to hedge funds, the largest proportion of any investor type. As of May 2016, these investors have USD208 billion allocated to the industry, up from the USD190 billion they had committed twelve months ago.
 
Despite this increase in capital investment, almost half (49 per cent) of public pension funds have decreased their allocation to hedge funds in the past twelve months, while 47 per cent have increased their exposure. This indicates a division in public pensions’ attitudes to the industry: some high-profile investors like NYCERS have cut their allocation to hedge funds, but other large pension funds have been committing increasing levels of capital to the industry.
 
On average, USD1 billion Club investors allocate 16.8 per cent of their AUM to hedge funds, compared to the average of 14.8 per cent allocated by all other investors. USD1 billion Club investors invest in 33 vehicles on average, compared to eight vehicles for smaller investors. 


Private sector pension funds and sovereign wealth funds each account for 16 per cent of USD1 billion Club capital. Private sector pension funds increased their invested capital from USD107 billion in 2015 to USD122 billion in 2016, while accounting for a net growth of five members of the USD1 billion Club, the most of any type. 

 
North America-based investors account for 62 per cent of capital committed to hedge funds by the USD1 billion Club. Europe-based investors account for 23 per cent of the capital committed to the hedge fund industry by the largest investors, a slight increase from 12 months ago (21 per cent). 

 
Just 7 per cent of USD1 billion Club investors prefer to invest through funds of hedge funds, compared to nearly a third (31 per cent) of all other investors. Forty-six percent of USD1 billion Club members prefer to invest through direct hedge funds, while 47 per cent use a mix of direct and funds of hedge funds.

“Despite the small number of participants in the hedge fund investor USD1 billion Club, they are mighty in influence and represent nearly a quarter of all capital at work in the industry,” says Amy Bensted (pictured), head of hedge fund products at Preqin. “As such, it is understandable why the redemptions of high-profile institutions such as NYCERS in 2016 and CalPERS in 2014 may attract headlines; these investors are the cornerstone of the asset class and a potential mass exit could herald worrying times for hedge funds.

“However, the signs in 2016 remain positive, with a further net increase of participants in the USD1 billion Club over the past 12 months, and the exposure of these investors to hedge funds has increased by nearly USD30 billion. With large resources and the continued support of the hedge fund industry, the USD1 billion Club is likely to remain influential and active.” 
 

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