Family offices have the biggest portfolio exposures to hedge funds and private equity on a global basis, indicates a new Preqin report.
On average, family offices have 24.5% of their portfolio assets allocated to PE and 19.1% to hedge funds. Endowments have the second biggest exposures, of 12.9% to PE and 18.8% to funds, says the 2013 Preqin Investor Network Global Alternatives Report. Insurance firms have the smallest allocations, with 2.6% allocated to PE and 2.4% to hedge funds.
In terms of capital inflows, public and private pension funds are the largest PE allocators, accounting for 43% of capital invested by private equity funds during 2001-2011. By comparison, foundations and endowments collectively comprise 19% of total PE capital invested during the same period.
Pensions have also gradually increased their exposures to hedge funds in the past few years and are “a significant contributor to the expansion of the hedge fund industry as a whole”, which has $2.3 trillion in AUM globally, notes Preqin.
Private pensions have raised their allocation to hedge funds from 7.2% in 2009 to a targeted 9.6% in 2013, while public pension hedge fund exposure is expected to rise from 6% to 7.2% over the same period.
By region, the large pools of assets controlled by North American pensions and funds of funds have helped make the continent the biggest investor into alternatives, with 51% of the total, followed by Europe (31%).
Asia accounts for only 12% of capital invested in alternatives, but Preqin predicts that investors from the region and other non-Western markets will account for a greater share of the total as they become more active in this area.
Institutional allocations to PE and hedge funds are expected to rise, adds the report. More than 80% of existing private equity investors plan to increase or maintain their allocations to PE this year.
The same proportion (80%) of hedge fund limited partners indicated they will increase or maintain their allocations to the asset class.
Equity long/short is the most popular hedge fund strategy, favoured by 45% of investors, followed by global macro (31%), event-driven (20%) and multi-strategy (20%). Convertible arbitrage was the least favoured with only 6%.
Preqin says institutions are increasing their allocations to alternatives, which also include real estate and infrastructure, amid the low-interest-rate environment, with “many becoming more reliant on alternatives to provide both returns and stability”.