A Manager Snapshot Survey conducted by Infovest21 found that a typical hedge fund has an average of 110 investors. And a whopping 54 percent of those investors are family offices/high net worth individuals.
Financial institutions like banks and insurance companies account for 11 percent of an average hedge fund organization’s investor base, while fund of funds account for 13 percent. Pension funds contribute about 8 percent while sovereign wealth funds and foundations represent about 3 percent each.
Compared to 2010, the share of family office investors and foundations as a percentage of the investor base has grown. The percentage distribution among all the funds including, private capital, pension funds and endowments declined from previous levels. Infovest21 president Lois Peltz said after the survey that hedge funds expect the share of family offices to fall to 49 percent of their investor base by the next year.
Firms’ private funds should inch up to 15 percent, pension funds will increase their share to 9 percent while foundations will rise to 4 percent within one year. The share of financial institutions in a hedge fund’s investor base will remain almost flat while sovereign wealth funds will come down to 1.7 percent.
As for performance, 90 percent of the hedge funds surveyed showed positive performance last year with 11.7 percent average gains. For 2012, the average fee structure was 1.5 percent management fee and 18.2 percent performance fee, according to the survey. 19 percent hedge funds lowered their management fee while 10 percent of the hedge funds surveyed lowered their performance fee.
High net worth/family offices investors and foundations represent a higher percentage of the investor base in 2013 than 2010. The percentage of pensions, endowments and funds of funds, however, fell off from 2010 levels.
Lois Peltz, president of Infovest21, stated, “Looking out one year, managers expect the percentage of high net worth/family offices will drop to 49% of their investor base. Funds of funds are expected to account for an increased percentage i.e. 15% while pensions are expected to inch up slightly to 9% and foundations to advance to 4%. Financial institutions (e.g. banks, insurance company) are expected to stay about the same percentage while sovereign wealth funds are expected to drop to 1.7%.”
Preqin, another research firm, also conducted a survey but based on the capital inflow to hedge funds instead of their investor base. It found that pension funds account for over 20 percent of the institutional capital invested in hedge funds.
U.S. pension funds are looking to increase their exposure to hedge funds this year. Preqin said pension funds expect increased returns on their investments to reduce their unfunded liability and meet their actuarial yield assumptions.