A global survey of 50 institutions by research house Preqin has found significant shifts away from investing through fund of funds at the same time as their overall appetite for the hedge fund sector is increasing. 64% of the respondents made their first hedge fund investment though a fund of fund, but only 36% of those continue to do so.
The GFC and 2008 were obviously a turning points for the industry as the survey showed that 80% of respondents that have moved away from fund of funds did so in 2008 or after, presumably as a result of liquidity, performance or transparency.
Other key findings included:
- 64% of respondents entered the asset class through fund of funds investments, but only 36% of these continue to invest solely through funds of hedge funds.
- 36% of respondents that currently invest solely in funds of hedge funds plan to move towards direct hedge funds in the future.
- 60% of respondents cited the extra layer of fees as the main reason they moved away from funds of hedge funds.
- Greater control over their investments (54%) and more in-house resources (13%) were other reasons cited for the move into direct investment.
- Public pension funds still invest heavily in funds of funds, with two thirds of public pension funds only investing through funds of hedge funds.
- Endowments and insurance companies are the largest investors in direct funds, with 66% and 50% respectively only investing in hedge funds directly.
For a copy of the Preqin survey please click on the link below
Preqin fund of fund survey (pdf format)
