Family offices and funds of hedge funds are the most likely institutional investors to invest in start-up hedge funds, a new investor survey by Credit Suisse has found.
Some 65% of family office respondents said they trusted early stage hedge funds last year, with the pedigree of the investment team and discounted fees as the most persuasive factors.
They were also frequent users of Founders share class opportunities in 2017. Founders share class offers early investors reduced fees of up to 20% for a defined commitment period.
In recent year, fees have become a key factor when evaluating hedge fund managers because of the rise of passive investments and questionable outperformance of active funds.
However, the survey found that the realignment of interests between managers and investors in hedge funds is steadily continuing. Seventy-six percent of the investors in the survey were utilising at least one type of preferential fee, a massive 67% increase from the 2009 figure.
Survey respondents also reported a 65% net decrease in the use of the traditional 2 and 20 fee model.
Family offices, in particular, have been getting access to early stage discounts, longer lock discounts and the sliding assets under management (AUM) model.
Family offices and private banks, across the Americas, Europe, Middle East and Africa, and Asia, represented 10% of the $1.1 trillion in hedge fund AUM covered by the survey.
In terms of preferred strategies, family offices had a preference for equity-oriented strategies in 2017.
Thirty-seven percent of those surveyed were in emerging market -focused equity strategies, followed by fundamental long/short equity. Family offices were also the most active in the co-investment space.
Looking ahead, Asia Pacific-focused hedge funds seem to be the flavour of the year for all institutional investors. Net demand for Asia Pacific has grown to 50% from 24% in the past 12 months, with the most interest from regional investors, the survey found.
According to data provider Eurekahedge, there are 1193 hedge funds with an Asia ex-Japan focus, managing $180.33 billion. That represents 7.2% of global AUM.
Year-to-date, these funds have received $2.49 billion and seen a performance growth of $2.24 billion. North America funds, in comparison, have received over $13 billion.
Surprisingly, Eurekahedge data found that average hedge fund management fees for Asia funds launched in 2018 was 1.75%, the highest among all regions. Average performance fees, in contrast, were the lowest at 13.75%.