P&Is survey data also showed that as of June 30, 22 managers handled at least 90% of their hedge fund-of-funds assets on behalf of institutional investors and seven managers only managed institutional assets. They are Attalus Capital LLC, Commonfund Asset Management Co., General Motors Asset Management, Greenwich Alternative Investments, ING Alternative Asset Management LLC, Rock Creek Group and SSARIS Advisors LLC.
Blackstone Alternatives remained the largest manager when ranked by fund-of-funds assets managed for U.S. institutional investors with $12.2 billion, and BNY Mellon also stayed in the top five with $7.3 billion. However, other players took the remaining top spots in this smaller universe. In second place with $7.34 billion under management for U.S. institutional investors was Pacific Alternative Asset Management Co., Irvine, Calif.; Arden Asset Management LLC, New York, was fourth with $6.8 billion; and AIG Investments, New York, had $5.9 billion.
Whats quite interesting is that many of the largest managers in the overall rankings manage a comparatively small amount of institutional assets, said Alyssa Cheatham, a hedge fund-of-funds consultant at Stratford Advisory Group Inc., Chicago.
Indeed, the four managers at the top of the overall hedge fund-of-funds assets ranking received less than 40% of their assets under management from institutional investors: 32% of UBS assets were institutional; 37% for Man Group; 16% for Permal; and 15% for GAM. The fifth largest manager overall, Credit Suisse, did not provide a breakdown of institutional assets.
Ms. Cheatham noted there was some correlation between business longevity and the percentage of institutional assets managed by larger hedge fund-of-funds managers. The longer the hedge fund-of-funds manager has been in business, the lower the percentage of institutional assets tends to be because for so many of them, their initial client base was from high-net-worth clients. Permal is a great example of this. Permal was founded in 1973, making it the second oldest among the hedge fund-of-funds managers that responded to P&Is survey. Goldman Sachs Hedge Fund Strategies LLC, New York, was founded in 1969, and just 37% of its $20.4 billion of fund-of-funds assets were managed for institutions as of June 30.
The high percentage of institutional assets managed by many hedge fund-of-funds managers in P&Is rankings really confirms that growth for many alternative asset managers has been driven by institutional investors. It shows how much attention these managers have been paying to attracting institutional investors, said Paul D. Schaeffer, managing director-strategy and innovation in the San Francisco office of SEI Investment Manager Services.
The P&I charts also show that there are some boutique asset managers that have grown really large in the hedge fund-of-funds area. The big winners have been the independent, boutique specialty managers. The large, traditional asset management companies are conspicuously absent from these rankings, Mr. Schaeffer said.
These boutiques have been winning institutional business because their investment practice rules the day, said Jim Cass, also a managing director at SEI Investment Manager Services. Mr. Cass works closely with hedge fund and fund-of-funds managers as head of SEIs operational solutions unit. These managers spend a lot of time in a more consultative role during the sales process with institutional investors. They come back to provide the education about the asset class as many times as it requires until the client is comfortable enough to make an investment. The sale takes a long time, but the rewards are much greater, because the relationship with the client is closer and trust is higher, Mr. Cass said.
He said the fact that boutiques tend to be more flexible about lowering fees, accepting smaller investments and creating customized funds of funds to accommodate institutional investment guidelines or legal requirements also have made them an easier hire than larger, more traditional asset management companies.
The P&I survey, conducted in July and August, was open to all hedge fund-of-funds managers. Questionnaires were returned by 60 companies. Data on four companies included in the rankings came from company sources or the firms investment adviser disclosure form filed with the U.S. Securities and Exchange Commission.