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From Kirsten Bischoff, Opalesque New York:

Post financial crisis institutions are moving in large numbers to direct hedge fund investing strategies. Most recently $35bn sovereign wealth fund KIC announced it would put more money into hedge funds through direct investing, and according to a Preqin survey 64% of institutional investors made their first hedge fund investments through fund of funds, but since then only 36% continue to do so with the rest favoring direct investing.

However, according to research by Citi Prime Finance these direct hedge fund allocations have resulted in a few surprising trends. These include:

• Direct hedge fund investors are still looking to outsourced CIOs, consultants or fund of hedge funds advisors
• Direct allocations are leading to fewer hedge fund holdings (rather than 20-50 holdings through fund of funds direct allocators are typically making only one to four hedge fund investments per year).
• Direct allocators are consciously looking to build long-term relationships with their hedge fund managers (i.e., they represent 'stickier’ money).
• Funds with $1.0bn to $5.0bn are the main beneficiaries of these investors. The emerging managers that direct allocators favor have assets between $500m and $1bn.

The full Citi Prime Finance report on Direct Inves......................

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