A new report from Preqin shows just how differently institutional investors and institutional asset gathers look at the world of alternative investing.

Prequin decision factors july 2014 Hedge funds

Hedge funds: Placement agents survey

In a survey of placement agents, code words for fund salespeople, and consultants, those who have a significant influence in determining which funds receive assets, the Preqin study, which featured placement agent Eaton Partners and consultant Mercer as contributors, found that in some areas there was general agreement but in other areas placement agents were from Venus and consultants were from Mars.

Perhaps most interesting is a key similarity in how both groups viewed what has been academically criticized as an unreliable indicator of future results: past performance.  The study found that both placement agents and consultants viewed the track record of the investment team as the second most important factor in determining allocation location.

While both placed a premium on past performance at the portfolio manager level, there was slight differences on overall past performance of the firm.  Consultants placed a slightly higher importance on firm track record, at 63 percent, than did placement agents at 53 percent.

Prequin decision factors 2 july 2014 Hedge funds

 

Hedge funds: Consultants and placement agents measures of investment performance

While both buying and selling past performance is a key if not controversial component of determining where institutional assets land, both the consultants and placement agents did look at interesting measures of performance under the hood of the investment.

Consultants rated returning investor base as their top performance measure of consideration, while placement agents had this third on their list. This is the equal of measuring a restaurant based on how often people return. Those who eat at an establishment on a regular basis understand the nuance of its performance, how strident and communicative they are – particularly during periods of inevitable drawdown. It is this period of sustained loss which is the most important period of time for open communication to exist between the fund and its investors.

Other interesting measures in the study included the fact placement agents rated the ability of a fund to hire the top agents as being of higher importance than consultants, who placed this measure last on their list. Placement agents considered a fund manager investing in the fund as more significant than did fund managers, who viewed fund terms and conditions as a key consideration.