Despite the growing popularity of hedge funds among institutions, high net worth individuals are still by far the biggest buyers of the asse...

Despite the growing popularity of hedge funds among institutions, high net worth individuals are still by far the biggest buyers of the asset class, according to a major study on hedge funds by the Man Group, the London-based alternative investment specialist. Growth in hedge funds in Asia was also looked at in detail by the study, along with the likely consolidation in the fund of hedge funds sector. Together with private banks and family offices, HNWs purchased in 2004 44 per cent of all hedge funds, compared with just 12 per cent from institutions. Fund of hedge funds products account for another 40 per cent of investments in the asset class and these have grown rapidly in recent years, according to the study. A significant proportion of the buyers of fund of hedge funds products would also be HNWs. The Man study said that despite all the talk about the increasingly mainstream nature of hedge funds among the investment community, the reality is somewhat different. “The transition of the hedge fund industry into the mainstream is therefore partly one of perception at this stage, and for all the talk of a maturing hedge fund industry entering the mainstream; this has yet to fully happen in reality,” said the report, entitled: The Changing Hedge Fund Landscape. Man sees HNWs and college endowment schemes as being part of the “vanguard” of investors in the sector, compared with the bigger universe of investors. “The vast majority of investors have made only a nominal investment, dipping their toes in with low percentage point allocations,” said Man. But initiatives throughout Europe on the regulatory side of hedge funds are likely to improve investor appetite for the asset class. The study highlights moves in Germany and expectant progress on the regulatory side in France, Spain, Sweden and Holland. Among other topics covered in the report, the growing important of the Asian hedge fund market was discussed at length. “Asia has become more hedge fund friendly with participants encouraged by recent changes such as the increasing liberalisation of short selling rules, the less onerous registration requirement for hedge funds, notably in Singapore, and the decision last year to allow fund of hedge funds to register in Hong Kong and Singapore,” said the report. Consolidation Another theme explored was the likely consolidation in the hedge fund sector, particularly in the fund of funds hedge fund sector. “With over 1,500 funds of hedge funds managers attempting to secure access to nearly 6,000 single hedge funds, the industry exhibits a high degree of imbalance.” The study added: “A report from InvestHedge states that there were precisely 105 funds of hedge funds groups with over a billion dollars in assets at June 2004. While it is probable that the membership of this particular circle will expand given the rapid growth in asset acquisition –this group alone grew assets by 27.77 per cent on average over the six months to June– this segment of the industry possesses too many marginal players.” Man predicts these trends will lead to widespread consolidation.