Europe falls flat in allocations to hedge funds, but pensions take over

Europe has been the weakest region globally when it comes to raising hedge fund assets since the 2008 crisis, according to a global study published today.

The survey was conducted by hedge fund trade body Alternative Investment Management Association and auditors KPMG and covered 150 managers with $550bn assets.

It found managers who had taken in new money from Europe since 2008 (53% of respondents) were roughly equalled by those (47%) who had not.

In Switzerland the balance was worse, with 56% of managers reporting less business from there since 2008.

In all other regions – North America, Asia Pacific, and the Middle East – a larger portion of managers increased business than lost it.

This trend was mirrored across various fund sizes, except for managers running between $500m and $1bn, where 70% reported growing business from Switzerland.

The survey also found three quarters of hedge funds have experienced increased investments by pension funds since the global crisis began – but managers are having to undergo increased due diligence and provide more transparency as a result.

It found 57% of global AuM in the $2trn hedge fund industry now comes from institutional investors.

High net worth individuals and family offices, the first investors in hedge funds, now represent 43% of assets.

“The days when hedge funds catered almost exclusively to high net worth
individuals and family offices are long gone,” the report noted.

Between 70% and 76% of respondents said they had experienced more business from pensions and other institutional investors, while the same proportion said they had suffered a decrease in fund of funds business.

The growth in pension business was slightly more pronounced at large hedge fund firms (87% of those firms with 100 or more employees), but was still a facet at smaller rivals (79% of hedge firms with between 25 and 99 workers).

The growing importance of institutional clients has brought extra requirements in terms of operations, transparency and regulatory compliance, the study found.

The amount of time managers say they have spent handling due diligence inquiries from investors has doubled since 2008.

Some 88% of respondents reported increased due diligence since 2008, 84% said they had improved transparency to clients, and all but 2% said they had hired more people for regulatory compliance.

Andrew Baker, AIMA CEO, said the ‘institutionalisation’ of hedge funds was defined as much by these attributes at funds, as by their receiving more money from the world’s largest investors.

Robert Mirsky, lead partner for hedge funds at KPMG UK, said: “The combination of an increase in regulation, the changing nature of the investor base, and the natural evolution of the business has made the industry nearly unrecognisable from only five years ago.”

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