Hedge Fund Co-Investing Quickens as Investors Chase Bigger Gains

(Bloomberg) -- Hedge fund co-investments are becoming increasingly popular as allocators including pensions and endowments seek bigger gains and lower fees.

About 41 percent of investors said they plan to put money to work alongside hedge funds this year, according to a Credit Suisse AG report released Wednesday. That compares with 33 percent in 2016. Almost 30 percent of hedge funds are planning to employ or increase the use of the strategy.

Co-investing -- which allows investors to put money in individual deals alongside managers rather than invest directly into funds -- began gaining traction after 2008 as clients sought more illiquid assets. Such allocations are becoming more popular as capital continues to flow into non-traditional products and customized mandates.

Hedge Fund Co-Investing Quickens as Investors Chase Bigger Gains

Higher returns, clients and managers with common goals and increased transparency are the top drivers for co-investment allocations. Credit Suisse polled 311 institutional investors with about $1.12 trillion in hedge fund investments for the 2019 investor survey.

Here’s a look at the report’s other findings:

Allocation Size

About 70 percent of investors are writing checks of $25 million and below to the strategy, Credit Suisse said.

Hedge Fund Co-Investing Quickens as Investors Chase Bigger Gains

Fees

More than half of allocators that co-invest don’t pay a management fee, though 78 percent pay a performance fee of some kind. That’s below the average industry fees of 1.45 percent of assets and 17 percent of profits, Credit Suisse reported in an August survey.

Hedge Fund Co-Investing Quickens as Investors Chase Bigger Gains

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