Liquidity and Transparency

How They are Changing Alternative Investing


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Survey Sample

30 investors with $971bn in assets.

Approximately $94bn invested in hedge funds (9.7% of overall assets).

Breakdown of sample by category & overall assets
Foundations 1%
Insurance companies 16%
Pension funds 70%
Private banks 9%
Wealth managers 4%
Breakdown of sample by geography
Asia 10%
Europe 70%
North America 17%
The Gulf 3%

Q1. Do you anticipate that you will be allocating more, less or the same to the following investment areas over the next 12 months?

Graph 1
Source: International Fund Investment 2010

Q2. How much more important is liquidity when determining which alternative investments to allocate to than it was two years ago?

Graph 2
Source: International Fund Investment 2010

Q3. How much more important is transparency when determining which alternative investments to allocate to than it was two years ago?

Graph 3
Source: International Fund Investment 2010

Q4. How do you anticipate that your allocations to hedge fund strategies will change over the next 12 months? Which ones will you be allocating more and less to?

Increases in popularity Decrease in popularity
Global macro Long-short equity
Multi strategy Distressed
Credit Arbitrage strategies

Source: International Fund Investment 2010

Q5. Which methods of investing will you be using for your allocations to hedge funds over the next 12 months?

Use of funds of funds is reducing whilst interest in, and use of, managed accounts is increasing.

Graph 5
Source: International Fund Investment 2010

Q6. Would you prefer to allocate to investments funds, including alternative funds, that are domiciled in offshore or onshore locations (assuming similar performance for a similar strategy)?

Those who prefer onshore funds are not ruling out investing offshore. If there was an attractive fund that could not be found onshore, they would invest offshore.

Graph 6
Source: International Fund Investment 2010

Q7. Do you welcome the anticipated growth in regulation of alternatives in Europe and the US?

Several welcomed more regulation in the US; but not in Europe.

The majority believe that regulation will add to costs, hurt performance and make it more difficult for start-ups, which are considered an essential ingredient in the evolutionary hedge fund industry.

Graph 7
Source: International Fund Investment 2010

Q8. Are fund servicing issues becoming more important to you?

The overwhelming majority who said fund servicing is not becoming more important made the point that it is a subject that they have always taken extremely seriously.

Graph 8
Source: International Fund Investment 2010

Q9. Is the domicile of a fund becoming more important to you?

Graph 9
Source: International Fund Investment 2010

Q10. What do you consider to be the most important issue facing alternative fund investors today (besides performance)?

Graph 10
Source: International Fund Investment 2010

Overall Conclusions

  • Increased emphasis on liquidity is not temporary. It’s a consequence of the current economic climate as well as lock-ups, gates, side-pockets, etc. that were imposed by hedge funds in response to the market crisis. Whilst current deflationary economic conditions remain, investors will continue, overwhelmingly, to allocate to liquid strategies.
  • Transparency is equally critical. Is there a larger role to be played in the industry by administrators in this regard?
  • Smaller institutional investors are unsure of the means that they use to allocate to hedge funds. Several are unhappy with the performance of fund of funds during the crisis but are not sure what else to use.
  • Managed accounts are growing in importance but smaller institutions are not always sure that they are appropriate for them.
  • The anticipated increase in regulation is not welcomed by the majority of investors. The larger and more sophisticated the investor the less they want it.