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Covid 19 impact on hedge fund investor interest

October 22 , 2020 |4 Comments

Institutional Investors And Hedge Fund Activism

Simi Kedia Rutgers Business School Laura T. Starks University of Texas at Austin – Department of Finance Xianjue Wang Southwestern University of Finance and Economics (SWUFE); Rutgers, The State University of New Jersey – Rutgers Business School at New- ark & New Brunswick Abstract: Hedge fund activists have ambiguous relationships with the institutional shareholders in their target firms. While some support their activities, others counter their actions. Due to their relatively small holdings in target firms, the activists typically need the cooperation of other institutional shareholders that are willing to influence the activist’s campaign success. We find the presence of “activism-friendly” institutions as owners is associated with an increased probability of being a target, higher long-term stock returns, and higher operating per- formance. Overall, we provide evidence suggesting the composition of a firm’s ownership has significant effects on hedge fund activists’ deci- sions and outcomes. SSRN

In 2000, hedge funds enjoyed a sizeable growth, owing to the inflow of capital from institutional investors. The institutional investors’ shift into the hedge fund industry was as a result of the hedge funds’ best performance. As a result, an increase in the industry’s net assets was reported. Precisely, total assets under management of the fund increased from $197 billion at the closing of the year 1999 to $1,390 billion at the end of 2007, a rise more than the global GDP. Thus, the shift from less risky investments to hedge funds

yielded positive returns. Furthermore, institutional investors influenced changes in prices of diverse financial instruments, thus creating a positive impact on the cumulative

* Over the course of the past year, 36 institutional investors have entered the Billion Dollar Club and 28 have exited – a total of 242 investors now invest $1bn or more in hedge funds. * Collectively, the Billion Dollar Club allocate $805bn to the asset class, a 6% increase from June 2016 when these investors allocated $763bn to hedge funds. This represents 24% of total hedge fund AUM. * Public pension funds account for the largest proportion (28%) of capital allocated by the Billion Dollar Club, and represent the highest number of new entrants to

the club (11) over the past 12 months. * North America accounts for the greatest proportion (61%) of capital invested in hedge funds by the Billion Dollar Club, while Europe-based investors account for just over a fifth (21%), and Asia accounts for 9%. * Members of the Billion Dollar Club give greater weight to hedge funds within their portfolios. They typically allocate 16.0% of their total AUM to hedge funds, compared to 14.5% among all other investors. * However, this represents a decrease over the past 12 months: the average allocation to hedge funds of

a Billion Dollar Club member was 16.8% as of June 2016. * Overall, there has been a net reduction in allocations in the past 12 months: 37% of Billion Dollar Club members have decreased their allocations in the past year, while 28% increased them. Amy Bensted, Head of Hedge Fund Products: “Investor outflows dominated the narrative surrounding the hedge fund asset class in 2016. However, despite some high-profile redemptions and withdrawals in recent years, the group of the largest hedge fund investors continues to grow in both number and influence. The past 12 months have

seen a net increase of eight institutions, and total allocations from these investors now exceed $800bn collectively. The Billion Dollar Club consequently has great influence over the industry; one in every four dollars in hedge funds today comes from this group of 242 institutions. These investors are increasingly using their collective might to lobby hedge fund managers to improve the alignment of interests between the two parties. At a time when fund terms and conditions are in the spotlight, this will ultimately improve alignment for all institutional investors in the asset class.” Article by Preqin

Hedge Funds and Money Laundering

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Covid 19 Impact On Hedge Fund Investor Interest

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