Hedge fund managers staged a stunning comeback in 2009 and the bonus for institutional investors is that they are firmly in the driver's seat moving into 2010 and beyond.
Collectively, hedge fund managers last year turned in their best performance in a decade, with a 17% return, according to a composite of diversified hedge fund indexes compiled by Bank of America Merrill Lynch Global Research's year-end Hedge Fund Monitor report.
But sources said it was an especially important year for institutional investors, because heavy redemptions from high-net-worth investors at the end of 2008 and in the first half of 2009 left hedge fund managers with a collective client list that for the first time is tipped toward institutional investors.
More specifically, about 72% of hedge fund assets came from institutional investors in 2009, according to data provider Preqin Ltd., London.
The bias toward pension fund investors has given them “the upper hand and they know that if they want certain attributes from the hedge fund managers, they have to demand them” and they have largely been successful in getting concessions on issues like transparency, liquidity and very deep operational due diligence, said Nadia Papagiannis, alternative investment strategist at Morningstar Inc., Chicago.
“Transparency, liquidity, capital preservation, integrity, independent administrator are not (just) buzzwords, but (became) the words of caution among institutional investors,” said Vidak Radonjic, managing partner at Beryl Consulting Group LLC, Jersey City, N.J.
The transparency achievement “was the single most important change in 2009 and going into 2010. These trends that institutional investors have started will define the industry and continue for years to come. It's not like anyone will go back now to accepting less transparency,” said Kenneth J. Heinz, president, Hedge Fund Research Inc., Chicago.