Hedge Fund Consultants Play a Growing Role

Hedge funds are relying more on institutional investors for funding, according to a new survey just released by alternative assets research firm Preqin. Hedge funds receive nearly three-quarters of their capital from institutions now. Ironically, it means many hedge funds are no longer the dominant domain of wealthy investors, but are instead indirectly playing a role in the financial security of teachers, firefighters and janitors” as Reuters reports.

Pension funds and endowments take roughly three months to select a fund, and select about 10 hedge fund investment a year. The Preqin survey also noted that these institutional investors rely on two sources for selecting hedge funds.

The first are consultants. Consultants are playing a bigger role in introducing hedge fund managers to pension funds. For example, the Reuters article mentioned that the State of Wisconsin Investment Board is currently using consultants Cliffwater to identify suitable hedge fund investments for 2 percent of the state’s $69.6 billion pension fund.

Investors also find new managers through networking at industry conferences, or relying on capital introduction teams at prime brokers. A remaining 20 percent use industry databases and presumably, do the research themselves.

The Preqin survey also mentioned that the number of proposals received to actual investments was in the neighborhood of 60-to-1. Daunting odds, to be sure. It also points out the need for expert hedge fund marketing in raising funds, especially in the current market where newer and smaller funds are struggling to attract investments.

What’s your take? Has the shift to more institutional money affected your fund? Your approach to marketing? Add your comments below.

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{ 1 comment }

A DOWNING June 26, 2010 at 5:07 am

When Institutions and Governments show interest and invest in hedge funds, changes are bound to occur in the way funds operate. More transparency is, surely, the first thing. I met few from Hedge Fund experts last month. They tell that it is same as managing a public limited company.

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