The respondents of this survey represent over $630 billion in assets. Pension funds, Insurers and asset managers are by far the biggest investors with over $600 billion under management. Most investors have not yet filled their maximum allocation quotas to hedge funds and most invest in single managers as opposed to investing in funds of hedge funds.
The most common way to find hedge funds is through Capital Introduction teams, used by 76 % of the investors. Investors that have a mandate to allocate up to 30% of their total assets, represent 80% of the investors, excluding funds of hedge funds. Most Nordic Investors are confident in their own ability to pick hedge fundsand don’t use external advisors when investing. On average, investors meet 20 new hedge fund managers for each investment they make.
Most investors want at least a one year track record before they invest. Among Nordic investors, 31 % don’t require funds to have a minimum asset size before they invest, while 56% of the investors accept lock-ups if the fund’s strategy requires them. Most investors have not changed their transparency requirements after the turbulence of 2008.
Allocations to hedge funds are growing with 41 % of the investors planning increases. During 2009, 68% of all investments were made in non-Nordic hedge funds. Long/Short Equity and Global Macro are the strategies that the investors expect to perform the best during 2010.
Hard to find strategies
When asked what strategies were hard to find, investors gave a mixed response. Several investors said it was hard to find Long/Short Equity strategies that performed well both in bull and bear markets, while others thought it was hard to find hedge funds with a focus on Latin America. The most common response was that it is hard to find consistent outperformers over a long term horizon.
The hedge fund industry is expected to grow further during 2010. Among Nordic investors, 41% are expecting to increase their allocations and most investors have not yet filled their maximum allocation quotas to hedge funds. Around 25 % of the investors expect Event Driven, Credit and High Yield/Distressed strategies to perform well during 2010, while only around 11 % of the investors expect to increase their allocations to these strategies this year. This is likely to be because of investors diversifying their portfolios and that they are making long term investments, where the next year’s performance won’t be the most important factor in their investment decision.
The typical Nordic investor requires a hedge fund to have 12-36 months of track record, a fund size larger than $50 million and monthly liquidity, to be willing to invest. Furthermore, the Nordic investor takes about 30 new meetings per year and invests in one or two of the managers they have met. However, most Nordic investors are open-minded when it comes to hedge fund strategies and diversification of their investments. In 2009 most of the investors allocated the majority of their assets to hedge funds that they had not previously invested in.
Jonas Lindgren is Head of SEB Enskilda Prime Brokerage and Charlotte Bonde Tamm is Head of Capital Introduction. SEB Enskilda Prime Brokerage provides service to money managers with an absolute return focus, across all strategies, structures and geographies. It has over 30 years of experience with leading European and US Hedge Funds.