Fri, May 27, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Citi Prime Finance survey: Institutional investment increase, competition with long-only funds could lead to significantly more assets in hedge fund industry

Wednesday, June 13, 2012
Opalesque Industry Update - Assets invested with hedge fund firms could more than double by 2016, according to a just-released survey from Citi Prime Finance. The study finds that pension funds, endowments, foundations and other institutional investors are increasingly embracing the risk management and diversification that hedge funds offer, and that hedge funds are developing new products that compete with traditional, long-only managers. These trends could contribute to a sharp rise in hedge fund assets over the next few years.

“While institutions have been allocating to hedge funds for years, such investments were considered to be on the periphery of core portfolio holdings”

In the third of its annual market-leading surveys of hedge fund industry trends, the newest, titled Institutional Investment in Hedge Funds: Evolving Investor Portfolio Construction Drives Product Convergence, finds that institutional investors are refocusing allocations based on risk budgets rather than dollar-weighted allocations alone. The survey and its findings and forecasts are the result of more than 80 hours of in-depth interviews with 73 industry participants, including institutional allocators, hedge fund managers, large traditional asset managers, consultants and fund of funds managers. Participants represent $821 billion in assets allocated, managed or under advisement in the hedge fund industry.

“We see a second wave of institutional allocations to hedge fund strategies, as well as new allocations to long-only strategies managed by hedge fund firms,” said Sandy Kaul, U.S. Head of Business Advisory Services at Citi Prime Finance, which provides trade execution, financing and business services to many of the world’s leading and emerging alternative asset management firms.

The first wave of institutional allocations to alternative investments occurred from 2003 to 2007, when institutions poured more than $1 trillion into the asset class. Investors at that time followed the example of Yale University and other leading endowments that were able to significantly outperform traditional 60 percent equity / 40 percent bond portfolios during the 2000 to 2002 market downturn by incorporating hedge funds and other diversified investments into their portfolios.

“While institutions have been allocating to hedge funds for years, such investments were considered to be on the periphery of core portfolio holdings,” said Alan Pace, Head of Citi Prime Finance. “That is no longer the case. Today, with investors more focused on risk alignment within the overall portfolio, hedge fund allocations will play a central role in institutional portfolios in the years ahead.”

According to the new survey, global assets invested with hedge fund firms could rise from today’s record $2.1 trillion to more than $5 trillion as a result of two emerging trends. First, is the potential for market-leading institutional investors to increase allocations to hedge fund strategies by $1.0 trillion in order to better insulate against risk and to help ensure more diversified portfolios.

Second, the survey revealed a “convergence zone,” in which hedge funds and traditional asset managers will increasingly compete head-to-head to offer a broad set of equity and credit strategies. The survey observes that there could be an additional $2.0 trillion in new allocations to hedge fund firms in the form of regulated alternatives and long-only products. Supporting this, the survey found that mature hedge fund firms are leveraging their deep infrastructures and resources towards creating these offerings.

Other key findings of the Citi Prime Finance survey include:

- Know Your Investor - Hedge funds need to better understand how each institution is using alternative investment strategies. Knowing how to present their funds to most effectively address each type of portfolio configuration is becoming a key requirement for hedge funds.

- New Opportunities in Unconstrained Long Product – Traditional asset managers are moving away from strictly benchmarked strategies to offer more unconstrained long products. These lower fee offerings may be the area where hedge funds and traditional asset managers compete most directly for allocations.

- Changing Role of Intermediaries – The role of intermediaries, such as consultants and funds of funds, is shifting and hedge fund marketing teams are increasingly utilizing these relationships to promote their funds, raise assets and extend their relationships into the long-only areas of their institutional client organizations.

The full report, along with other industry analysis and reporting can be viewed at: Source

(press release)

Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.

BG

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Paul Tudor’s hedge fund trims fee amidst poor performance, keep investors[more]

    Komfie Manalo, Opalesque Asia: Paul Tudor’s $11.6bn hedge fund firm Tudor Investment Corp. announced on Monday it would slash down fees of one of its biggest fund to 2.25% of assets and 25% of profits amidst backlash arising from poor performa

  2. Ares Capital to buy American Capital in $3.4 billion deal[more]

    From PIOnline.com: Ares Management's business development company Ares Capital Corp. is buying troubled BDC American Capital for $3.43 billion, said a joint news release by the BDCs and another release by Ares Management. Ares Capital Corp.'s assets are expected to grow to about $13.2 billion when t

  3. Performance - Hedge fund ETFs take a battering, Have long-short credit funds delivered?[more]

    Hedge fund ETFs take a battering From ETFStrategy.co.uk: It was a blow for the hedge fund world when Hillary Clinton’s son-in-law Marc Mezvinsky announced he would be closing his Greek-focused fund after it plummeted in value by 90%, just two years after it launched. For passive investor

  4. Launches - Man Group and American Beacon launch new emerging debt fund, Nikko AM launches new Japan equity UCITS fund[more]

    Man Group and American Beacon launch new emerging debt fund American Beacon Advisors, an experienced provider of investment advisory services to institutional and retail markets, launched the American Beacon GLG Total Return Fund today. The Fund became effective May 20. The America

  5. Emerging markets hedge funds perform strongly, but capital base erodes[more]

    Komfie Manalo, Opalesque Asia: Latin American Emerging Markets and Russian hedge funds lead industry gains in the first months of 2016, posting strong performances through April as global and EM equity, commodity and currency markets surged in recent weeks following steep losses to begin the year