2008 was the breakpoint year that drove many institutional investors out of hedge funds of funds and into direct investments in hedge funds, according to a new survey from financial researcher Preqin.
A June survey of 50 institutional investors from around the world found that of respondents that moved to direct hedge fund investing, 80% did so in 2008 or later. The remaining respondents were evenly split, with 10% migrating between 1990 and 1999 and 10% making the move between 2000 and 2007.
The major reason for moving into direct investments was to lower fees, according to 60% of those surveyed, while 54% said more investment control was the motivation.
Still, 35% of institutions surveyed remained committed to investing only in hedge funds of funds, according to Preqin's report on the findings, and 34% invested in a combination of direct hedge funds and funds of funds. The remainder were invested only in single and multistrategy hedge funds.
Preqin researchers said in the report that their interviews with institutional investors over the past several months revealed that hedge funds of funds were subject to greater review after the financial crisis in 2008 because of their poorer performance compared with single-strategy and multistrategy hedge funds, suspension of redemptions, and exposure to the Madoff Ponzi scheme and other “high-profile fraudulent funds.”