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Hedge Fund Demand: Brighton House Associates Q2 2009 Report

Date: Tuesday, August 4, 2009
Author: HedgeCo.Net

HedgeCo.net () - During the first quarter, most alternative investors spent their time rebalancing their portfolios, redeeming with current managers, and waiting for the market to correct itself. This process freed up capital and uncovered gaps in portfolios, ultimately leading to a significant increase in interest in the second quarter, according to a report by Brighton House Associates (BHA), a and FoHF reserach firm.

Fixed-income strategies and volatility arbitrage were sought after, and experienced a significant boom in interest, as investors looked to take advantage of pricing created by rebounding markets, the report said. Investors’ concerns were evident by a push for greater liquidity, transparency, and access from managers of alternative funds. This shift manifested itself in conversations BHA analysts had with the global investor community.

Nearly a quarter of all real estate fund interest in Q2 came from wealth advisors. Consultants and plans also showed significant interest. 48% of the real estate investors that BHA spoke were specifically targeting the commercial sector. In terms of strategy; most investors were looking opportunistically at any type of real estate exposure, and the majority of investors were focused on core and value-added strategies.

The second quarter of 2009 was very strong for funds. in particular saw an increase in investor interest after a disastrous Q1. In the first quarter, BHA received 108 mandates for funds of funds from investors; in the second quarter that number jumped over 40%. Several factors contributed to this change, including increased investor tolerance for lock- and longer redemption periods, increased investor interest in single-strategy funds of funds, and various investor types looking to increase their funds of funds exposure.

Many investors that spent the first quarter on the sidelines outlined active mandates while others committed capital to funds. Investors reported interest not only in funds with which they had long standing relationships, but also in new funds to which they were introduced in the past few months.

While many strategies realized increased interest during the quarter, volatility arbitrage and fixed income were two of the most intriguing, the report said. The rise in interest in volatility arbitrage is of little surprise. As the push for liquidity, focused investors on highly liquid, short-term trading-oriented funds. Investors also increasingly favored the relative stability and predictable returns that fixed-income funds provide. In the private equity space, venture capital showed signs of rebounding after a rough start to the year.

During the second quarter, 57% of investors profiled by BHA analysts maintained minimum asset requirements of $1 million to $200 million for potential funds, and 19% looking for funds with a minimum of $21 million to $75 million.

Investors and managers are hoping to build on the momentum created during the second quarter and carry it forward into the second half of the year, the report concluded.

Brighton House Associates is an research firm that speaks to investors across the globe about their current interest and activity in funds. Brighton House works with a network of over 100 fund managers and assists in indentifying qualified investors for their internal marketing campaigns.

Each quarter, BHA analysts collect detailed profiles from more than 1,000 investors globaly that are actively making investments in hedge funds, private equity and real estate funds, and related funds of funds. These investors’(AUM) range from less than $100 million to more than $10 billion dedicated towards alternative investments.

Editing by Alex Akesson

For HedgeCo.net