Given the still teeny chunk of UK long-term savings placed in the alternative investment universe, this must only be the beginning. But money from institutions invested in hedge funds has overtaken that of wealthy individuals for the first time, say Greenwich Associates.
Direct investment by pension funds, endowments and the like represent a quarter of the assets in the world’s largest funds, up from 22 per cent in 2006 and 20 per cent in 2005.
That also excludes a further 25 per cent that comes from fund of hedge funds, to which institutions, cautiously taking their first steps into hedge fund investing, are large contributors.
In contrast, wealthy people and family offices – initially the bread and butter investors to funds – now contribute 21 per cent overall.
With US institutions putting just 2.1 per cent of their assets into hedge funds and fund of funds last year, the numbers seem pifflingly small. But Greenwich point out that the 1,900 insitutional investors in their survey have $6,600bn in their total pool of assets – and allocations are now more than double where they stood in 2001.
In the UK, about 3 per cent of assets go to alternatives, well behind the allocation in other European countries.
One manager who looks after money for large institutions told us that the level of hand-holding, explanation and comfort demanded by institutional investors far exceeded that of the traditional wealthy individual looking to ramp up his risk and returns through hedge fund investing.
He added that as such he saw a preference for long-short or event-driven strategies, over CTAs or global macro which were seen as impenetrable or difficult to understand.
Unsurprisingly then, Lipper Tass’s latest flows report notes that the pace of first quarter inflows rose by 52 per cent over the final three months of 2006, with event-driven and long-short leading the pack, posting their 16th consecutive quarter of positive inflows. Global macro and managed futures both experienced outflows.