Investors' demand for hedge fund co-investments rose sharply over the past 10 years with 41% reporting in 2019 that they allocate to these illiquid investments alongside their hedge fund managers, a new survey from Credit Suisse's prime services-capital services group showed.
In 2016, 33% of those surveyed invested in hedge fund sidecars, compared with 11% in 2013 and just 7% in 2010.
Larger investors are more likely to invest in co-investments, with 68% of investors with more than $5 billion reporting allocations to the vehicles vs. 34% for allocators with less than $5 billion in their asset pools.
The Credit Suisse survey team attributed the increase in co-investment allocations to investors' desire for better alignment of interest with their hedge fund managers and the rise of customization within the hedge fund industry.
Investors of all sizes increasingly are seeking to invest in customized hedge fund vehicles rather than in the industry's traditional master-feeder fund structure.
In 2019, 58% of survey participants said they invested in hedge fund strategies via customized structures or separately managed accounts rather than commingled funds, a 10-percentage-point increase from 2017.
Separately, survey results found that 89% of investors that redeemed assets from hedge funds in 2018 said they expected to reallocate the assets to other hedge funds, compared with 87% of respondents in 2017 and 82% the previous year.
Credit Suisse surveyed 311 investors for the 2019 survey, 21% of which were pension funds, endowments, foundations, insurance companies or sovereign wealth funds. Total assets invested in hedge funds by all investors that participated in the survey totaled $1.12 trillion.