International Institutional Investors

Non-US Institutional Investors Return to Hedge Funds

Investor confidence is returning as hedge funds have performed well so far this year, bringing new and old institutional investors back to hedge funds. This includes many large non-U.S. institutional investors such as the $37 billion Universities Superannuation Scheme; the $25 billion Korea Investment Corp.; and the roughly $11 billion West Midlands Pension Fund.

Investors hope to make good returns from investment opportunities in the market volatility, and they anticipate paying less to invest as some hedge funds have lowered fees and agreed to more investor-friendly terms. Another factor drawing investors to hedge funds is the access to managers. Many institutional investors did not have access to the top tier hedge funds but with redemptions and a decline in limited partners many more investors are able to work with the top of the industry.

Consultants and investors also say improvements in fees and terms are making hedge funds more attractive. [Senior investment consultant] Mr. Loveday said some hedge funds' fees now align with liquidity. Examples include back-loading fees on a strategy with a two-year lockup instead of calculating them daily. They're also exchanging reduced liquidity for lower fees.
But performance could be the most important consideration.
“There has been a clear-out of players in the financial market with a reduction in both the number of hedge funds and banks investing proprietary capital. That inevitably means pricing anomalies and opportunities exist much longer and at wider levels than they did historically when competition was greater,” Watson Wyatt's Mr. Loveday said. “High-quality managers are in a much better position to take advantage of opportunities now that there are far fewer (proprietary trading) desks and hedge funds.”
Equity long/short managers that don't use a lot of leverage and multistrategy managers with skill across a number of areas are in the best position to thrive in the current environment, Mr. Loveday said. Source

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Tags: International Institutional Investors, foreign investors, foreign institutional investors, global institutional investors, pension funds, hedge funds, endowment institutional investing in hedge funds

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