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Alternative Market Briefing

Concentration counts - How investor ownership shapes hedge fund liquidity, leverage, and returns
Monday, June 02, 2025

Matthias Knab, Opalesque for New Managers:

In a sweeping analysis of data from 2013 to 2023, the SEC's Division of Economic and Risk Analysis (DERA) has released a landmark study on the relationship between beneficial ownership concentration and hedge fund outcomes. Based on Form PF data, the white paper offers critical insights for fund managers, investors, and regulators. It shows how the identity and concentration of a fund's top investors meaningfully influence fund performance, liquidity, leverage, and capital restrictions. What is a Concentrated Fund?

The study defines a "concentrated" qualifying hedge fund (QHF) as one where the top five beneficial owners control more than 70% of equity. In contrast, "unconcentrated" funds fall below this threshold. Over the decade examined, concentrated QHFs have nearly doubled in number-from 533 in 2013 to 1,012 in 2023. Who Owns What?

Private funds are consistently the largest investors in both concentrated and unconcentrated QHFs. However, concentrated funds show higher participation by State/Municipal Pensions and Sovereign Wealth Funds, while non-profits and individual investors play a larger role in unconcentrated QHFs. Liquidity: Concentrated = More Flexible

Portfolio and investor liquidity have declined across all funds over time, but concentrated funds consistently offer ......................

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