Who are the main investors, what are the largest management companies and how non-qualified investors invest in hedge funds
Currently the main hedge fund investors are institutional investors, contrary to what happened 20 years ago, where most were family offices
The following graph shows the types of hedge fund investors in 1999 and 2019:
Currently, the largest hedge fund investors are primarily institutional investors, such as pension funds, foundations, banks, insurance companies and asset managers. The family offices managers that accounted for more than 55% of the investment in hedge funds 20 years ago, in 1999, today they represent only 3%.
In terms of individual investors, it is usually millionaires who invest in alternative products and in hedge funds.
The following graph shows the composition of the investment allocation of Ultra High Net Worth Individuals (UHNWI) and High Net-Worth Individuals (HNWI), households with net worth of more than $30 million and $1 million, respectively:
We see that the allocation to alternative investments is higher in UHNWI, 46%, than in HNWI, 22%.
The following chart shows the decomposition of alternative investments by the same type of investors:
Here the situation is reversed, representing the investment in hedge funds 25% in UHNWI and 34% in HNWI.
Hedge funds are mainly North American and the largest are directly associated with their founders and historical managers, such as Ray Dalio’s Bridgewater and Jim Simmons’ Renaissance Technologies
The hedge fund industry is a fundamentally North American and somewhat European reality.
The US has $2.7 trillion of assets under management, Europe $673 billion, and Asia only $121 billion.
The 15 largest hedge fund management companies in the world are the following:
We see that the main managers are North American and are personalized in their founders and main managers. The biggest are Ray Dalio’s Bridgewater Associates, Jim Simmons’ Renaissance Technologies, and we also find Elliot, DE Shaw, Kemper, etc.
As can be seen in the following chart these great managers have accumulated huge fortunes and incomes over the years:
Non-qualified investors invest through hedge fund of funds made available by large asset and fund management companies around the world
As mentioned earlier, investing in hedge funds are mainly institutional investors, and private investors must be qualified investors.
However, there are investment fund management companies that have developed hedge funds that give access to unqualified private investors. They are called funds of hedge funds.
As 15 maiores sociedades gestoras de fundos de “hedge funds” são as seguintes:
In this list we see many of the world’s traditional management companies, whether asset management or investment funds, such as UBS, Goldman Sachs, Blackrock, Morgan Stanley, etc., many of them for institutional investment, which typically include private banking client asset management companies.
In general, we believe that affluent private investors should focus their investments on traditional equity and bond markets, which provide interesting returns and risk.
Investment in alternative products should be made as designed by professionals or qualified investors, as they require greater knowledge and experience in selection, management, and monitoring.
As we have seen, in general, the profitability of hedge funds has been below of the one achieved by investing in stocks in recent times. Historical data also show that its attractiveness may be higher in very recessive periods, benefiting from its lower correlation with other assets.