Institutional Investors Seeking Smaller Hedge Funds: Preqin

institutional investors

Institutional asset managers could be investing in more mid-sized asset managers in 2014, according to a report from Prequin reviewed by ValueWalk. 

In its publication, “Prequin Investor Outlook: Alternative Assets 2014,” the alternative investment data provider to institutional investors claimed “The largest number of investors (57%) stated that they expect to invest with managers with assets under management of between $1bn and $5bn in 2014.” The lowest proportion of stated investor interest was for managers with more than $5bn in assets, “suggesting that investors are beginning to look towards the mid-to-large funds, and away from the behemoths of the industry.”

Smaller managers nimble on fees, trade footprint

Issues cited as the preference towards smaller managers were the ability of a smaller manager, with a more nimble trade footprint, to take advantage of a wider opportunity set in markets traded and the ability to negotiate favorable fee agreements.

Prequin favoriability Institutional Investors

Investors generally had a positive outlook towards alternative investments, with private equity being the most positive with a 63% favorability rating.  When it came to where they were putting their money, however, the study found that 46% said they plan on increasing allocation towards infrastructure plays while 39% cited private equity as the target of their next allocation.

Prequin allocation Institutional Investors

Performance not always top issue for institutional investors

In regards to the top issues institutional investors had with various categories, hedge funds and infrastructure investments had performance listed as the top issue, while regulation was the key issue in private equity and economic environment was the top concern in real estate investments.

Prequin issues Institutional Investors

In terms of making investment decisions, past performance, length of track record and strategy were generally the top considerations, with size of the manager ranking generally low across the board.  While many investors expressed interest in lowing fees, particularly in regards to reducing management fee and alignment of interests relative to reliance on a performance fee, the majority of investors across the board said they felt the interests of their fund are aligned with the investor.

Prequin decisions Institutional Investors

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About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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