Sovereign wealth funds are moving more money into hedge funds.
Stock market volatility has driven sovereign wealth funds to hedge funds for uncorrelated returns, Preqin found in a recent report. Sovereign wealth funds make up less than 1% of all investors in hedge funds, but as large institutional investors, they hold about 11% of total hedge fund assets invested by institutions, reports ValueWalk. About 33% of sovereign wealth funds have a hedge fund allocation, up from 31% in 2013.
Sovereign wealth funds offer an interesting opportunity for hedge funds. They invest much longer term than other institutional investors, meaning hedge funds get big bucks and long time commitments.
Not all sovereign wealth funds are fans of the hedgies. Many still deem them too risky or expensive. Most of the funds with hedge fund allocations come from North America, Asia, and the Middle East, and they usually invest between $300 million and $1 billion with new hedge funds. Those that do invest in hedge funds also tend to invest with a number of different hedge fund strategies in order to diversify.
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