SWFs Lead Resurgence in Fund of Funds Interest
Private equity and real estate investments are not new to many sovereign wealth funds (SWFs), but hedge funds are. This year, the Chinese Investment Corporation (CIC) committed $500 million to funds of hedge funds managed by The Blackstone Group and Morgan Stanley. This is an encouraging sign for many funds of hedge funds that have found it difficult to raise capital.
It will be interesting to see if CIC’s venture into funds of hedge funds will trigger other Asian SWFs to follow suit. Funds of hedge funds have received a good deal of negative press since the Madoff scandal; many had invested significant amounts of capital in Madoff’s fund. However, large institutional investors typically look to begin their allocations to hedge funds through funds of funds investments because of the diversity offered.
CIC had established a relationship with Blackstone and Morgan Stanley well before this year. Its investment shows its confidence in these firms and in the funds of funds market in general. Coincidentally, the Korea Investment Corporation stated recently that it wants to begin an alternative investment program that will include allocations to hedge funds.
With prominent institutions such as these making assertive investment decisions, BHA analysts believe other Asian SWFs will be encouraged to do the same.