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MUFG Investor Services to Acquire Rydex Fund Services

MUFG Investor Services, the global asset servicing group of Mitsubishi UFJ Financial Group, and Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, have entered into an agreement in which MUFG Investor Services will acquire Guggenheim’s 1940-Act mutual fund administration business, Rydex Fund Services. The transaction is expected to close in the fourth quarter of 2016, subject to regulatory approvals and customary closing conditions. The terms of the deal are undisclosed.

When consummated the deal will complete MUFG Investor Services’ full service offering for investment managers, adding regulated 1940 Act mutual fund and exchange traded fund services expertise to a comprehensive service proposition, which spans single manager, fund of hedge fund, private equity and real estate funds, pension funds and traditional asset managers.

The acquisition when completed will add $52 billion to MUFG Investor Services’ assets under administration (AuA) bringing total AuA to $422 billion. The assets serviced by Rydex Fund Services primarily consist of Guggenheim and Rydex branded mutual funds, exchange-traded products and closed-end funds, for which Guggenheim Investments will continue to serve as investment advisor.

Junichi Okamoto, Group Head of Trust Assets Business Group, Deputy President, Mitsubishi UFJ Trust and Banking Corporation said: “The acquisition of Rydex Fund Services will strengthen our position as an industry-leading administrator and is an important part of our commitment to supporting the growth of new clients and extending our services to existing clients. This deal will add capabilities which will allow us to respond more dynamically to our clients’ changing needs, enabling them to fully realize new market opportunities and support their growth ambitions.”

John Sergides, Managing Director, Global Head, Business Development and Marketing, MUFG Investor Services, said: “Demand for liquid alternative strategies has risen significantly in recent years as retail investors recognize the return potential and diversification benefits relative to traditional asset classes. Alternative fund managers are increasingly establishing ‘40-Act fund structures to access this growing market. We recognize the challenging environment our clients face and continue to enhance our offering to support the strategies that managers must deliver, both now and in the future. Our complete offering will allow us to become the partner of choice for alternative fund managers of all sizes, strategies and structures.”

Nikolaos Bonos, Head of Rydex Fund Services, commented: “MUFG Investor Services will provide new opportunities for us to extend and enhance our ‘40-Act fund administration experience for the benefit of our current and future clients. Aligning our team within the MUFG Investor Services group will enable us to respond to rising demand for liquid alternatives with a comprehensive service proposition that supports the development of investment managers’ businesses.”

Upon completion, MUFG Investor Services will be acquiring all of Rydex Fund Services’ business and intends to provide a seamless transition for its employees and clients.

deVere USA Announces Further ‘Hub Office’ in Miami

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Miami is to become the second ‘hub office’ for deVere USA. The firm, part of deVere Group, has had a presence in the South Florida city since June 2011, but has now moved to larger premises in the main financial district to accommodate more advisers to meet demand.

Gareth Jones, the firm´s Area Manager in Miami, explains: “Whilst New York – which is, of course, the financial epicentre of America – remains our HQ and super hub office, skyrocketing client demand across the U.S. has driven the need for another hub office from which advisers can help our growing numbers of U.S.-based clients wherever they choose to live and work.”

He continues: “With this in mind, we have recently moved into larger premises on the prestigious Brickell Avenue, famed for having the largest concentration of international financial institutions in the U.S.

“This relocation is part of a strategic expansion that will allow us to take on more financial advisers and support staff to meet the continually increasing demand, not only in the Florida region, but in neighboring states and further beyond too.

“There are currently 11 of us in the Miami office and we are looking to at least double this number within the next 12 months.

“This operational development will allow us to further enhance deVere USA’s national position as the ‘go-to’ and most trusted advisory firm for international investors and expats.”

In 2013, as part of the “next phase of its global strategy for growth”, the firm announced it would not open pan-America offices as it had planned before, but instead would focus on a few key cities from which its consultants can serve their clients over a wider geographical area.

New York was the first ‘super hub office’, whilst Miami and San Francisco – the other deVere U.S. offices – remained more focused on their immediate surrounding areas. Now the Miami office is preparing to look further than it did previously, as it becomes more of a hub centre.

The Fed Sticks to the Script (Yawn…)

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So, the Federal Reserve missed another opportunity to raise rates last Thursday.

I know what you’re thinking. Rates were never going up. We all know they’ll warn us for weeks before pulling the trigger—and besides, there was no press conference, and rates never change unless there’s a press conference.

But this is precisely the problem. The Fed’s script has become so predictable over recent years—and predictably wrong—that no one really listens anymore.

Listen to Markets, Not FOMC Members
Last week’s statement was no cut-and-paste from the month before. There was hawkish new wording about “near-term risks” having “diminished,” and “strong” job growth and household spending. But markets pushed Treasury yields down—the opposite of what one might expect. Fed Funds futures did raise the implied probability of a rate hike in December, but you needed a microscope to see it.

Since the bungled messaging around the Jackson Hole conference in August last year and the subsequent FOMC meeting in September, we’ve been urging investors to ignore what the Fed says and focus instead on what the market predicts it will do. Markets have proven better forecasters of how stalling productivity growth and the global economic slowdown would work their way into U.S. monetary policy.

This matters because, for central banks to maintain control, they need their messaging to be strong enough to lead markets.

From Mystery to Messaging
To understand how we got here, it’s helpful to go back to the summer of 1982, when I was a trainee at Salomon Brothers and Paul Volcker was in the chair at the Fed.

Things were different then, and not only in the sense that overnight rates were at 20% and inflation was running at 12%. Volcker’s policy was innovative, radical and aggressive enough to beat inflation and usher in the bond-market bull that charges to this day; but it was also non-transparent to the point of being mysterious. FOMC members didn’t drop hints on 24-hour news. We understood that short-term money supply was important, so we’d hang on that data once a week and T-Bill rates would gyrate wildly, literally by hundreds of basis points.

The 1980s Fed could shock markets into obedience, and it worked: By the time Volcker retired, inflation was at 3%.

The “great moderation” he bequeathed enabled Alan Greenspan to pursue a more measured approach. Part of that was introducing greater transparency and guidance. As a believer in efficient markets, his view was that he could mitigate market and business volatility by giving people more information.

But Greenspan’s ideological imperative grew into a necessity under Ben Bernanke and Janet Yellen. When interest rates approach zero and quantitative easing loses traction, messaging quickly becomes the only effective policy tool left.

And yet, the last time the Fed was able to rattle markets with its messaging was three years ago, when Bernanke set off the “taper tantrum” by warning of tighter policy on the way. Since then the Fed has raised rates once. If you cut your teeth in the Volcker era, that is pretty sleepy stuff. No wonder the markets have tuned out.

The Fed Will Need to Drop the Script if We Get Stagflation
That’s worrying. My hope is to see a Fed courageous enough to surprise the market again—and I suspect that circumstances may one day force the issue.

After all, the European Central Bank and the Bank of Japan still occasionally show us how it’s done. Last Tuesday was the fourth anniversary of Mario Draghi’s “whatever it takes” intervention—the ultimate in central bank policy-by-messaging. Its announcements in March this year approached those heights, too, as did the Bank of Japan’s plunge into negative rates.

That aggressive and shocking action was forced by the precarious states that Europe and Japan were in. The Fed, by contrast, has for too long been in too comfortable a position, with decent job creation and at least some growth and inflation.

With that in mind, last Thursday’s media comments from one of the leading characters in our story bear repeating. Alan Greenspan attributed slowing productivity growth to the impact of an aging society on entitlement spending, which he argued is crowding out investment. As long as politicians remain unwilling to address that, economies will continue to stagnate. At the same time, however, Greenspan warned about signs of inflation.

If Greenspan is right and we are seeing the beginning of an era of stagflation, the great bull market in bonds could be about to end, and the Fed may have to turn its focus back to inflation again rather than growth stimulation—and do things that are radical and aggressive enough to surprise the markets. How radical will it need to be to regain the market’s attention? Now, that is a good question.

Neuberger Berman’s CIO insight by Brad Tank

2015, the Worst Year for Asset Managers Since 2008

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The global growth of asset management stalled as the industry in 2015 recorded its worst year since the 2008 financial crisis, according to a report by The Boston Consulting Group (BCG).

Growth in assets under management (AuM) stalled, and net new flows of assets, revenue growth, and revenue margins all dipped lower in 2015, according to Global Asset Management 2016: Doubling Down on Data. Asset managers’ future prosperity and competitive advantage will require them to shift from outdated product strategies and develop disruptive investment capabilities using leading-edge data and analytics, the report emphasizes.

BCG reports that the global value of AUM rose just 1% in 2015, to $71.4 trillion from $70.5 trillion in 2014, after growing 8% that year, and at an average annualized rate of 5% from 2008 through 2014.

BCG believes that the lack of overall growth was due largely to the generally negative and turbulent performance of global financial markets, which failed to buoy the value of invested assets as in prior years. Net new asset flows remained tepid. At the same time, the rising value of the US dollar reduced values of non-US assets in dollar terms.

Stuck in a Strategy of the Past
“Weak and turbulent global financial markets are today’s reality—one recent example being the market response to Britain’s ‘Brexit’ vote to leave the EU,” said Brent Beardsley, a BCG senior partner based in Chicago, the global leader of the firm’s wealth and asset management segment, and a coauthor of the report. “Asset managers that depend on financial-market performance to drive increases in asset values are stuck in a model from the past,” he said.

Overall profits remained relatively stable in 2015, but rose just 1% to reach $100 billion, the BCG report says. Profits as a percentage of revenues remained at a healthy 37% level, slightly below 2014, because of increased cost management by asset managers. Meanwhile, fee pressure on managers continued to rise.

The industry’s regional growth, as measured by AUM, reflected in large part the performance of capital markets by region in 2015. AUM decreased in North America and the Middle East but rose elsewhere. Growth was modest in Europe and strong in Latin America and Asia, excluding Japan and Australia. The 10% growth of AUM in Asia, excluding Japan and Australia, was relatively robust, but once again, it trailed the rapid expansion of the region’s private wealth.

Net new flows of assets—the lifeblood of the industry’s growth—also varied widely by region. Flows were tepid in the U.S. but more robust in much of Europe and Asia-Pacific, where they reached almost 2.5% and 3% of 2014 AUM, respectively. This performance marked a recovery of net flows in France, the Benelux countries, and Eastern Europe and continued positive momentum in Germany, Spain, and Italy. In Asia-Pacific, China and India were among the markets where net flows exceeded 10% of prior-year AUM.

While asset management continues to be highly profitable, the 2015 results underscore the continuing dependence of many managers on rising financial markets to boost asset values rather than on long-term competitive advantage to generate strong net new flows, the report says.

Advanced Data and Analytics “Will Define Competitive Advantage”
“The lack of market growth in 2015 reinforces the urgency faced by managers to pursue a step change in capabilities,” said Gary Shub, a Boston-based BCG partner, the global leader of the asset management topic, and lead author of the report. “Deep expertise, grounded in advanced data and analytics, will define competitive advantage and enable some managers to prevail,” he said.

Advanced and sometimes disruptive technologies—including machine learning, artificial intelligence, natural-language processing, and predictive reasoning—are on the verge of joining the mainstream asset managers, according to the report. Early-moving firms and financial-technology providers are beginning to model scenarios that push the boundaries of traditional analytics.

“As a result, today’s managers face a fundamental need to augment their investment processes by developing advanced capabilities in these digital technologies and practices,” said Hélène Donnadieu, a Paris-based BCG principal, the global manager of the firm’s asset and wealth management segment, and a report coauthor. “The alternative, for most firms, is to risk becoming irrelevant and trailing others in the ability to generate superior investment returns, or alpha,” she said.

Keeping up with the competition in that race to harness new technologies will require significant changes to almost all elements of a firm’s operating model, the report says. One example of these changes is how firms approach data, including its management, governance, and architecture. Crucial to that endeavor is the development of a target operating model, the blueprint of an asset manager’s ideal future state, to which the report devotes a full chapter.

The report also details the rising regulatory pressure on asset managers, noting that many players still need to develop a truly comprehensive risk management framework.

“Global regulators’ approaches to risk management in asset management are beginning to converge, giving firms a clearer view of appropriate risk investments,” said Zubin Mogul, a New York-based BCG partner and report coauthor.

The BOJ Hit Its Limit – A Summer Relief for Banks

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According to Tomoya Masanao, Head of Portfolio Management, Japan at PIMCO, it is clear that the Bank of Japan (BOJ) finally admitted that its current policy framework hit the limit. However, he believes that at least the BOJ’s decision on 29 July provides some relief for Japanese banks, insurance companies and pension funds.

In concluding its two-day monetary policy meeting, the BOJ “only” increased its equity ETF purchases and expanded its U.S. dollar-funding facility, both of which are “qualitative” parts of its so-called Quantitative and Qualitative Easing with a Negative Interest Rate Policy (QQE+NIRP). Neither additional QE (in the form of purchasing Japanese Government Bonds) nor further rate cuts from the current negative 10 basis points (bps) on the interest on excess reserves (IOER) were made.

Relief for Japanese financial institutions
The current policy framework is already neither effective nor sustainable and therefore needs to be altered Masanao notes. Since the surprise introduction of the BOJ’s NIRP on 29 January, the JGB curve has flattened massively. While the cut in the IOER was only 20 bps, the 40-year JGB yield fell by almost 100 bps to 0.06% earlier this month, evidence of how powerful the combination of QQE and NIRP has been in collapsing the yield curve. “The BOJ was (until now) operating with benign neglect regarding the costs to financial institutions of this dramatic move in the yield curve, emphasizing instead the intended economic stimulus impact of lowering long-term rates.” He states adding that “Extraordinarily low yields and flat yield curves are the least favorite recipe for banks and any other financial institution: Margins get squeezed as reinvestment yield declines while liability costs, or promised returns, cannot be lowered. The BOJ’s decision to keep the quantity (the JGB purchase amount) and the level of negative rates unchanged is a strong signal that the BOJ is finally admitting the large costs associated with its current policy framework.”

More welcome news for Japanese banks
The expansion of the BOJ’s U.S. dollar-funding facility should also be welcomed by Japanese banks and other financial institutions. They have been pushed to invest in “the outer circle” (e.g., U.S. Treasuries, corporate bonds and loans) as alternatives to their own domestic bond market where yields have become unattractive. Although encouraging financial institutions to take more risk was in part an intended result of the BOJ’s policy, this has reached a limit in Masanao’s opinion. The cost of U.S dollar funding, specifically the currency hedging, has soared for Japanese investors as their demand for funding has increased dramatically while the supply has been decreasing amid the post-crisis balance-sheet constraints of Western banks and the effects of imminent money market fund reforms in the U.S.

According to the specialist, the good news for Japanese financial institutions is not limited to the BOJ’s decision on QE and interest rates. The BOJ also said in its statement that the bank would conduct a comprehensive assessment on the effectiveness of its current policy. There is hope that the bank will make a very objective assessment on benefits, costs and risks of its policy and make appropriate adjustments for effectiveness and sustainability.

BOJ success so far
“To be fair, the BOJ has made some good progress since Governor Haruhiko Kuroda took his position in March 2013: The jobless rate has decreased to an extremely low 3.1%. Inflation is still low, but at least deflation is behind us. However, the returns on the BOJ’s policy have clearly diminished as the long end of the JGB yield curve has declined to such an extraordinarily low level. Perhaps it is time for monetary policy to move to a back seat and let fiscal policy take the wheel. We shall see.” He concludes.

Donor-Advised Funds Donors Give More Than Others

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An analysis of the giving behavior of more than 132,000 Fidelity Charitable donors in the 2016 Fidelity Charitable Giving Report, recently released, reveals that Donor-Advised Funds (DAF) donors provide more support for more charities than their counterparts who do not use donor-advised funds.

The report also uncovered that relief efforts and social giving efforts were key in motivating donors to give last year. The fact that retirees who give with a donor-advised fund feel more assured that they will be able maintain or increase their giving in retirement is other of the findings, with 62% of retired Fidelity Charitable donors who feel confident compared to 52% of retirees surveyed who do not use DAFs. Finally, another conclusion is that compared to donors nationally, Fidelity Charitable donors are significantly more likely to contribute appreciated assets, which may be one key reason they are able to give more.

The report is the fourth annual produced by Fidelity Charitable, an independent public charity with one of the nation’s largest donor-advised fund programs, and the nation’s second largest grantmaker, with cumulative grants of more than $22 billion since its inception 25 years ago.

The report uncovered that DAF donors provide more support for more charities than their counterparts who do not use donor advised funds. Over 70% of Fidelity Charitable donors give more than $10,000 per year, while only 42% of similar donors who do not use DAFs give the same annual amount. Significantly, 85% of DAF donors support six or more charities, compared to 36% of donors surveyed who do not use DAFs.

Fidelity Charitable donors are also significantly more likely to involve other members of their households when making decisions on giving. Sixty-two percent of Fidelity Charitable Giving Accounts have multiple donors with advisory privileges, those permitted to recommend grants. In addition, 82% of DAF donors engage others in their households in their decision making process versus 53% of donors surveyed who do not use DAFs.

“Our finding that donors with donor-advised funds are having more conversations about giving within their households and, ultimately, giving more to charities than donors who do not use donor-advised funds, demonstrates that having dedicated funds for giving encourages a more planned, thoughtful approach to philanthropy,” says Amy Danforth, president of Fidelity Charitable. “Best of all, this results in donors who provide greater and more dependable support to charities.”

Relief efforts and social giving efforts, such as charity walks, were key in motivating donors to give last year. Spikes in support of specific charities on the list included those providing relief to victims of the earthquake in Nepal and the humanitarian crisis in Syria. Reflecting this trend, UNICEF and OXFAM saw 38% and 35% increases, respectively, in the number of donors giving to them.

Findings include:

85% of Fidelity Charitable donors support six or more charities, compared to 36% of affluent donors.
Two-thirds of donor contribution dollars to Fidelity Charitable were non-cash assets, an 18% increase from the previous year.
60% of donors contributed appreciated assets to Fidelity Charitable last year, compared to just 19% of affluent donors at any time in their giving history.
82% of Fidelity Charitable donors engage others in the decision-making process around their giving versus 53% of similar donors.
62% of retired Fidelity Charitable donors feel confident about ability to give in the future. In comparison, only 52% of similar retirees have the same confidence.
71% of Fidelity Charitable donors give more than $10,000 per year, while 42% of similar donors overall give the same amount.
Among retired donors, 70% of Fidelity Charitable donors give $10,000 or more vs. just 27% among similar retired donors.
92% of donations allocated to Giving Accounts at Fidelity Charitable are distributed to charities within 10 years of receipt by Fidelity Charitable.
The number of charities supported by Fidelity Charitable donors increased 100% in 10 years, from 53,076 to 106,250.

Social Media is a Missed Opportunity for 37% of Wealth Managers

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Over a third of wealth managers are not communicating with high net worth (HNW) clients via social media according to financial services research and insight firm Verdict Financial.

The company’s recent report, Social Media in Wealth Management: Reaching clients and prospects on social media, found that while the majority of investors are now active on social media daily, generating opportunities for wealth managers to promote their brands through social media platforms, not all wealth managers are taking the opportunity to reach them there.

Katri Tuomainen, Analyst for Wealth Management at Verdict Financial, states: “According to our 2015 Global Wealth Managers Survey, 37% of wealth managers do not use a social media channel to communicate with HNW clients, despite the fact that 78% of consumers with investments log into their social media profiles on a daily basis.”

According to the survey, the most often cited reason for shunning social media use is that company policy prevents it (51.3% of respondents), with concerns that it is too public also key (41.2%).

Tuomainen continues: “When wealth managers are active on social media, it is typically restricted to high-level marketing activity and thought leadership promotion. Indeed, many of the larger players that use social media do so under their general brands rather than via the wealth management division, which can limit the impact and reach of their social media activities in targeting wealth management clients.Besides raising brand awareness and promoting thought leadership, wealth management companies can use social media to target a younger audience, as well as servicing customers. Relationship managers can also individually leverage social media to find and reach out to prospective clients, nurturing client relationships, and building their personal brands.”

Verdict Financial believes that not having a presence on social media gives an inevitable edge to those wealth managers that do have social media embedded within their marketing and communications strategies, while companies with a policy prohibiting social media use stand to lose out in the long run.

You can access the report in the following link.

Paul Vosper Joins PIMCO as Executive Vice President and Real Estate Strategist

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PIMCO, a leading global investment management firm, announced on Tuesday that Paul Vosper has joined the firm as an Executive Vice President and Real Estate Strategist. Vosper is based in the firm’s New York office and reports to Jennifer Bridwell, Managing Director and Global Head of PIMCO’s Alternative Products.

“With more than 24 years of experience as a real estate investment professional, Paul brings significant experience and knowledge to our business and will enhance our ability to provide investment opportunities for our clients,” said Bridwell.

Prior to joining PIMCO, Vosper held roles at Morgan Stanley as a Co-Head and Chief Operating Officer for Alternative Investment Partners (“AIP”) responsible for AIPs real estate investment strategies and developing real estate customized solutions for both institutional and private clients. At AIP, he also sat on the Investment Committee. During his career at Morgan Stanley, he worked on real estate transactions in Europe, Asia and the U.S., combining both public and private market experience. Previously, Paul served as Head of Client Relations EMEA for Deutsche Bank RREEF. He was also a Managing Director, Real Estate Investing at Alliance Bernstein. Vosper holds Juris Doctor and Master’s Degrees in Comparative & International law from Duke Law School. He also holds a Bachelor of Arts Degree in International Politics, Law and Organization from Georgetown University.

“PIMCO will continue to use its considerable resources to hire the best industry talent globally. Already this year, we have hired more than 140 new employees, including more than 30 investment professionals across many areas including alternatives, client analytics, mortgages, real estate and macroeconomics,” said Dan Ivascyn, Managing Director and PIMCO’s Group Chief Investment Officer.

Vosper joins PIMCO’s established real estate team of 49 investment professionals globally and his hiring is part of the continued expansion of the firm’s Alternatives investment platform.

Globally, PIMCO’s alternatives offerings span a range of strategies with more than 100 investment professionals overseeing hedge fund and opportunistic/distressed strategies, including global macro, credit relative value, multi-asset volatility and opportunistic real estate, mortgage and corporate credit strategies.

As of March 31, 2016, PIMCO managed approximately $25 billion in alternative strategies, including $9.2 billion in opportunistic real estate strategies worldwide.

The Top 100 Cities With Millionaires

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More multi-millionaires live in London than any other city in the world according to Spear’s magazine, in association with wealth consultancy company WealthInsight. The research shows that despite annual falls in the number of multi-millionaires living in London’s closest rivals Tokyo (2nd) and Singapore (3rd), London’s multi-millionaire population continued to grow by 0.8% from 2014 to 2015. The city’s multi-millionaire population now stands at 25% more than second placed Tokyo with 4,400 millionaires now residing in the city.

New York is America’s highest ranking city (4th) followed by Los Angeles (20th), and Houston (24th).

The eighteen cities that saw the biggest increases in multi-millionaire population year on year were all in Asia with the Chinese city of Dalian toping the overall rankings with a yearly increase of 5.4% multi-millionaires. On the opposite side, Kiev (-10.2%), St Petersburg (-7.9%) and Moscow (-6.8%) saw the biggest decreases followed by Sao Paulo (-5.7%), Abuja (-4.3%) and Rio de Janerio (-3.7%).

Commenting on the findings, Oliver Williams, Head of WealthInsight said: “For the three years that we have run this survey, London has maintained the lead with the largest population of multimillionaires. Though the growth in London’s wealthy residents has slowed from 3.3% last year to 0.8% this year, the capital looks set to maintain its edge over rivals such as Tokyo and Paris, whose economies have made them less attractive to multimillionaires. For the next two to three years at least we should expect London to retain its lead as the global capital of multimillionaires.”

On the larger ranking, Williams comments: “The biggest changes in this year’s ranking have been caused by political and economic turmoil. Ukraine and Russia have witnessed contractions as their wealthy residents flock overseas. The real success story of this year’s list has been the rise in multi-millionaires residing in Chinese and Indian cities.“

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Preqin: 5% of Hedge Fund Investors Account For 24% of Total Industry Assets

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The $1bn Club, that group of institutional investors which have committed more than $1bn to hedge funds, has seen a net growth of 11 participants since 2015, and now includes 238 members. Forty institutions have joined this group of the largest hedge fund investors, while 29 have fallen out of the $1bn Club after reducing their exposure to the industry, according to Preqin.

Although investors in the $1bn Club account for just 5% of all active hedge fund investors, they represent just under a quarter (24%) of the total $3.13tn AUM held by the industry, shows the report. The combined sum of capital invested by the $1bn Club has risen by 4%, from $735bn as of May 2015 to $763bn a year later.

Public pension funds account for over a quarter (27%) of total $1bn Club capital committed to hedge funds, the largest proportion of any investor type. As of May 2016, these investors have $208bn allocated to the industry, up from the $190bn they had committed twelve months ago. Despite this increase in capital investment, almost half (49%) of public pension funds have decreased their allocation to hedge funds in the past twelve months, while 47% have increased their exposure. This indicates a division in public pensions’ attitudes to the industry: some high-profile investors like NYCERS have cut their allocation to hedge funds, but other large pension funds have been committing increasing levels of capital to the industry.

On average, $1bn Club investors allocate 16.8% of their AUM to hedge funds, compared to the average of 14.8% allocated by all other investors. $1bn Club investors invest in 33 vehicles on average, compared to eight vehicles for smaller investors.  

Private sector pension funds and sovereign wealth funds each account for 16% of $1bn Club capital. Private sector pension funds increased their invested capital from $107bn in 2015 to $122bn in 2016, while accounting for a net growth of five members of the $1bn Club, the most of any type.  

North America-based investors account for 62% of capital committed to hedge funds by the $1bn Club. Europe-based investors account for 23% of the capital committed to the hedge fund industry by the largest investors, a slight increase from 12 months ago (21%).  

“Despite the small number of participants in the hedge fund investor $1bn Club, they are mighty in influence and represent nearly a quarter of all capital at work in the industry. As such, it is understandable why the redemptions of high-profile institutions such as NYCERS in 2016 and CalPERS in 2014 may attract headlines; these investors are the cornerstone of the asset class and a potential mass exit could herald worrying times for hedge funds.  However, the signs in 2016 remain positive, with a further net increase of participants in the $1bn Club over the past 12 months, and the exposure of these investors to hedge funds has increased by nearly $30bn. With large resources and the continued support of the hedge fund industry, the $1bn Club is likely to remain influential and active.” Commented  Amy Benste, Head of Hedge Fund Products, Preqin.