Increased partnership between investors and hedge funds

Investors increasingly are striking partnerships with hedge funds, underlining the closer collaboration taking place between the hedge fund industry and its investor base, according to a new survey by the Alternative Investment Management Association (AIMA), the global hedge fund industry association, and Barclays.

According to the new survey of investors and managers, called ‘The Extra Mile: Partnerships between Hedge Funds and Investors’, 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.

The survey revealed 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 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. The managers surveyed manage approximately $200 billion in assets.

Jack Inglis, AIMA’s CEO, said: “It is encouraging that so many hedge funds and their investors are striking such deep and wide-ranging partnerships. These arrangements represent a win-win for both sides, with significant benefits for both the manager and the investor.

“What the survey shows is that managers are truly going ‘the extra mile’ in terms of sharing knowledge and resources and providing customised products and services to their investor partners. These partnerships are also providing further evidence of very high levels of satisfaction among investors in their hedge fund investments.”

“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,”said Michelle McGregor-Smith, the Chief Executive of British Airways Pension Investment Management Ltd and the Chair of the AIMA Investor Steering Committee, which helped to direct the survey.

Lou Molinari, Managing Director, Global Head of Capital Solutions, Barclays, said: “The growth of partnerships represents an exciting new direction for the hedge fund industry as it continues to evolve. Successfully building partnerships with investors can allow managers to grow their business whilst increasing the stability of their assets under management, and cater to the specific needs of an increasingly-sophisticated investor base.

“Managers who are interested in pursuing partnerships should put in place a strategy to do so, identifying those investors they want to partner with, and deciding which of the elements of partnership they are best-placed to deliver.”

To download the survey, click here.