Hedge Fund Industry Snapshot 2015

The Managed Futures Association (MFA) recently reported on the hedge fund industry’s investors by major category. What does the hedge fund universe look like? For starters, as of December 2014, sixty-six percent of all investments in hedge funds were institutional investors. 

The major investor categories:

Public Pension Plans: 22%. Public, state, and municipal pension plans and unions are among the most prominent investors in hedge funds.

Private Sector Pension Funds: 19%. Corporate employees, whether they know it or not, are also invested in alternative investments, which made up 19% of the hedge fund arena as of 2014.

Fund of Funds: 17%. Hedge fund of funds offer investors the ability to diversify their portfolios, manage and mitigate risk, and invest in funds not available to all. As of 2014, hedge fund managers who invest in other hedge funs comprised approximately 17% of the hedge fund space.

High Net Worth Individuals: 9%. Although 9% of hedge fund investors are high net worth (HNW) individuals, due to their relatively smaller average investment size, HNW individuals comprise 3.6% of the total capital invested in hedge funds.

Family Offices: 7%. The family office universe accounts for approximately half of all in the institutional private wealth universe. The partnership between the family office and the hedge fund investment allocation appears quite strong. Family offices on average hold 22 hedge funds in their portfolios, a larger number than many other institutional portfolios.

Sovereign Wealth Funds. These country-run funds, typically generated by oil and commodity revenues, are big investors in hedge funds. They accounted for 5% of hedge fund assets as of 2014.

University Endowments. Thousands of universities and colleges invest in hedge funds as a tool to help their assets grow. Any gains from investments in alternative assets typically go toward funding scholarships, research, faculty salaries, academic buildings, and athletic facilities.

Other major hedge fund investors include banks, insurance companies, and wealth managers.

Preqin’s Outlook for 2015

“Although 2014 was undeniably disappointing for fund managers, and for the investors in their funds in terms of performance, the year was another successful one for the industry. Inflows continued to outpace redemptions, even taking into account that some high profile investors cut hedge funds from their portfolios; fund managers still saw opportunities to launch new strategies and the proliferation of new products, such as liquid alternatives, has opened up hedge fund investment to a wider audience.

“2015 looks set to be another year for asset growth; investors plan to put more money to work in hedge funds, and fund managers are similarly predicting the industry will grow further over the year. If managers can capitalize on the opportunities that have arisen as volatility returns to markets, then it may be a year in which hedge funds can show their true value as a risk-adjusted returns stream within a diversified portfolio.”