Small, new hedge funds draw interest from institutional investors

Nearly half of institutional investors, 46%, are willing to invest in young and/or small hedge funds and 15% would consider such an investment, according to a recent survey by database manager Preqin Hedge. If the new hedge fund had come from a well-established firm, the percentage of those who would invest rose to 55% and those who would consider doing so increased to 12%. Only 8% of survey respondents said they would seed a new hedge fund, but 12% said they would consider it.

Endowment officials are the most inclined to invest with emerging hedge fund managers, according to the survey; 64% of them would invest in an emerging hedge fund, followed by 60% of public pension plan officials, 50% of family offices and 30% of insurers. By contrast, only 14% of corporate pension plan officials said they would invest in an emerging hedge fund.

“With so many new investors entering the hedge fund market place, competition for access to the best funds and the best sources of returns is increasing,” said Amy Bensted at Preqin Hedge. “With the institutional market maturing, many investors are now using their knowledge and resources to invest in younger, less well established managers to gain access to the next generation of star managers.”

And just how much money does a manager need to entice institutional investors? Forty percent of institutional investors said they would invest in funds that had between US$100 million and US$500 million in total assets, while 17% of respondents demanded no requirements of potential hedge fund managers in terms of assets under management. And only 11% of institutional investors would only invest in a fund provided it had at least US$1 billion in AUM.

Read more