Institutional Investors Seeking Smaller Hedge Funds: Preqin

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.”

Prequin size Institutional Investors

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