Alt Investments
HNWs Becoming Marginalised in Hedge Fund World
High net worth investors are destined to become marginalised in the hedge fund industry and hedge fund managers are predicting that the indu...
High net worth investors are destined to become marginalised in the hedge fund industry and hedge fund managers are predicting that the industry will become increasingly dominated by large institutional investors.
Although HNWs are continuing to make hedge fund investments, the asset inflows from pension funds, endowments and corporate investors are rising faster. The proportion of hedge fund assets owned by individuals is therefore reducing.
Five years ago, most of what was then a $500 million industry was represented by wealthy individuals according to Tanya Styblo Beder, who runs Tribeca Global Management, a hedge fund that manages $1.5 billion for Citigroup.
"If we go forward to the year 2010, it's estimated that 80 per cent of the assets under management in hedge funds will be from institutions. So it's a big switch that's happening", she told Reuters.
This trend was highlighted by recent research from IFS, a UK financial lobby, which revealed that 44 per cent of the assets in the industry were owned by individual investors in 2004, down from over 60 per cent in 1996.
This institutional bias is even more pronounced when looking at the asset inflows into hedge funds. Last year, institutions accounted for around 30 per cent of these inflows. This is expected to rise to 50 per cent by 2008.
Industry insiders say that many recent individual converts to hedge fund investing may some loose interest after the less than stellar returns at many of the hedge funds which still have high risks and volatility, especially when compared with the recent bull run in equity markets.
High net worth investors tend to be far more capricious than institutions when it comes to new asset classes and types of investment.
October was the worst month for hedge fund performance since August 1998, according to recent research by Eurohedge. Most funds and strategies have produced flat returns in the first half of the year.
