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The Extra Mile: Partnerships between hedge funds and investors

Survey finds that institutional investors are increasingly striking partnerships with hedge funds

 

The evolving relationship between hedge funds and their investors was explored in ‘The Extra Mile: Partnerships between Hedge Funds and Investors’, which AIMA and Barclays published jointly in 2014.

The publication of this paper came at an important time in the evolution of the hedge fund industry globally. Amid the ongoing process of institutionalisation (a theme that was first addressed in AIMA’s Roadmap to Hedge Funds in 2008), institutional investors were found to be actively pursuing a more direct engagement with the underlying hedge funds in which they are invested. 

This paper explored the changing relationships between hedge fund managers and investors. As the title of the paper implied, both parties were found to be properly investing in these relationships – they are going the extra mile – and, in doing so, are achieving significant benefits for both sides. 

The paper, based on a survey of investors and managers, found that investors increasingly are striking partnerships with hedge funds, underlining the closer collaboration taking place between the hedge fund industry and its investor base.

These partnerships, the survey found, take many forms, including the sharing of knowledge on expertise and risk management, the building of more customized products, coinvestment solutions, product seeding and equity investment. 

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

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.

Benefits cited by the investors we spoke to included:

  • Improved knowledge and understanding
  • Better alignment of interest with managers
  • Better value for money 

Both larger and smaller managers and hedge funds of all strategies were found to be striking partnerships. The managers surveyed manage approximately $200 billion in assets.

Benefits to managers included:

  • "Stickier" or more loyal investors
  • Support for new product development
  • Cross-selling opportunities
  • Investor references

Figure 9

 

The extra mile border

“Both parties are properly investing in these relationships – as the title of the paper implies, they are going the ‘extra mile’ – and, in doing so, are achieving significant benefits for both sides.”

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