Endowments, Pensions Drive Hedge Fund growth

While there has been a lot of talk among lawmakers and regulators about the so-called retailisation of hedge funds, according to Investment News the one trend that has appeared to dominate the nearly $2 trillion hedge fund industry over the past decade has been the increased influence of institutional-class investors.

"The biggest change I've seen in the hedge fund industry is that it has become largely institutional," said Stuart Feffer, co-chief executive officer at LaCrosse Global Fund Services, a New York-based firm that provides back-office services for 50 hedge fund clients.

"Even as recently as five years ago, most of the money going into hedge funds was coming from wealthy individual investors," he added. "Now almost all of the new money is coming from institutions like pension funds, and most university endowments are making allocations to hedge funds."

According to HFR, assets in funds of funds totalled more than $800 billion at the end of March, up from $395 billion in 2005 and $76 billion in 1998.

"It used to just be about some wealthy individual investors trying to find ways to add alpha," said Adam Herz, founding partner of Hunter Advisors, a New York-based recruiting firm. "But hedge funds have become a real investment class, and the fee structures have influenced hiring the best and the brightest."

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