Investors strike hedge fund partnerships

Handshake 3Investors are seeking a more active engagement with hedge funds, says Michelle McGregor-Smith, the chief executive of British Airways Pension Investment Management, in a report that claims

partnerships lead to better access to knowledge and more value for money for investors.

McGregor-Smith, who is also chair of the investor steering committee at the Alternative Investment Management Association (AIMA), makes the comment in an AIMA/Barclays report that finds that investors are increasingly striking partnerships with hedge funds, which AIMA says reflects a closer collaboration taking place between the hedge fund industry and its investor base.

“The publication of this paper comes at an important time in the evolution of the hedge fund industry. Amidst the on-going process of institutionalisation, investors are actively pursuing a more direct engagement with the underlying hedge funds in which they are invested,” says McGregor-Smith.

The paper – called The Extra Mile: Partnerships between Hedge Funds and Investors – finds that partnerships of varying forms between hedge funds and their investors are becoming increasingly common.

More than three-quarters of managers and two-thirds of investors who took part in the survey said they had entered into partnerships.

The survey found five key elements of partnerships: access to expertise and resources; customised products and solutions; co-investment; product seeding; and equity stakes.

AIMA says the survey reveals a number of benefits to investors, including improved knowledge and understanding, better alignment of interest with managers, and better value for money.

Both larger and smaller managers and hedge funds of all strategies were found to be striking partnerships.

Benefits to managers included “stickier” or more loyal investors, support for new product development, cross-selling opportunities and the offer of investor references.

The investors surveyed manage a combined $2 trillion (€1.5 trillion) in assets, of which approximately $260 billion is allocated to hedge funds. They include pension funds, endowments, foundations, sovereign wealth funds and family offices globally.

©2014 funds europe