Hedge Fund (Medium-Sized) Mega Growth

June 28, 2011 James Heinsman Hedge Fund News

When Big Isn’t Necessarily Better

Sometimes it’s just not all about size. Especially right now, when we’re analyzing the recent performance of hedge funds. Taking a look at what happened last year, it seems that it was these hedge funds that, according to an article in The Financial Times, enjoyed “the largest net asset growth in 2010, bucking the industry assumption that new money is flowing primarily to the biggest funds.”

"Sweet Spot" Success

Indeed, in a survey taken by Citigroup, it was shown that hedge funds between $1-5bn “experienced the largest percentage increase in assets under management,” in 2010, at a staggering figure of 37 percent. As well, in terms of that group for assets under management, there was an increase last year of $85bn, as opposed to the $30bn figure for the next level managers ($5-10bn) and $72bn for the $10bn+ group.

Maturing Industry

According to Citigroup, since the whole industry has been maturing, the exposure by pension and sovereign wealth funds to smaller funds has been expanding simultaneously. This makes a lot of sense, according to global prime finance head at the US Bank, Nick Roe who commented: “by getting in early, pensions and sovereign wealth funds are positioned to grow with the manager as they build towards the $10bn AUM point and above.” When looking at pension funds and their statistics, it becomes much clearer. Along with institutional investors, for the first three months of 2011, they had over $100bn in hedge funds, which is nearly 50 percent of the total capital that is globally invested in hedge funds, as compared to the 2002 figure of $125bn, “which represented about a fifth of the hedge fund industry.”

Alternatives Investments

These days, according to pension funds consultants Towers Watson, close to 20 percent of institutional assets “are now invested in alternatives, including private equity, property and commodities.” About 10 years ago, this figure was nearer to 5 percent. That’s a substantial increase. Why is this the case? It seems that there is a greater confidence amongst pension funds vis-à-vis making investments and thus money is being allocated “directly to single manager funds rather than funds of funds.” As well, they are now getting wise to their ability to fight for “lower charges and different fee structures.”

Citigroup, Financial Times, Towers Watson,

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