Institutions make hedge funds focus on risk, cut fees -survey

HONG KONG | Fri Feb 11, 2011 4:22am EST

HONG KONG (Reuters) - Hedge funds are taking risk management far more
seriously, cutting fees and increasing transparency to woo
institutions that contribute the most assets to the $1.9 trillion
(1.18 trillion pounds) hedge fund industry, a survey shows.

Preqin, which surveyed 60 hedge funds that collectively manage $95
billion in assets, said capital sourced from institutional investors
had grown to 61 percent of hedge fund assets from about 45 percent in

Nearly half of the respondents said the amount of capital coming from
institutional investors had increased since the financial crisis in
2008, a sign that confidence was returning to the asset class.

Nearly half of the respondents said the fact that institutions had
invested more money had caused them to place in place tougher risk
management controls. Some 42 percent also said the rising
institutional base of clients had led to a reduction in the fees they
charged on their funds.

"The consensus is clear: hedge fund managers are witnessing large
inflows of capital from institutional investors, and are adapting
their fund strategies and marketing accordingly," Amy Bensted,
manager of hedge fund data at Preqin, said in a proclamation.

Hedge fund managers predicted institutional money will become more
vital to the industry over the next 12-18 months, with nearly 85
percent expecting a rise in the proportion of their assets coming
from institutional investors over the period.

Hedge funds, started as a tool for the wealthy to earn huge returns,
are increasingly turning towards institutional investors, which have
trillions of dollars of investable assets, as they look for larger
investments and stable sources of capital.

Preqin also highlighted that smaller funds received less capital from
institutional investors, with 70 percent of the respondents adage
their largest challenge in raising institutional capital was
overcoming requirements that funds maintain a smallest level of
assets under management.

"The mean AUM requirement of a hedge fund investor is around $320
million," the firm said, citing a study based on data from 2,500
institutional investors in hedge funds.

Source: Reuters.Com