Key Takeaways
- • Institutional investors will exceed high-net-worth individuals as primary hedge fund backers by 2020, with pension funds and sovereign wealth funds accounting for more than 25 percent of capital inflows, according to a KPMG International survey conducted with the Managed Funds Association and Alternative Investment Management Association.
- • Nearly 70 percent of hedge funds plan to launch custom investment options within five years, while more than two-thirds intend to introduce specialized fee structures to attract institutional capital.
- • Approximately 46 percent of hedge fund managers will alter investment strategies or launch new products specifically to attract pension fund allocations, with most predicting corporate and public pension funds will constitute their major capital source by 2020.
- • Geographic capital flows are shifting; Asia, the Middle East, and Africa will receive faster-growing inflows than Europe and North America, while 40 percent of hedge fund managers expect to change investment markets, with over one-third pivoting toward emerging and frontier markets.
- • The hedge fund industry is undergoing transformative structural change across product offerings, fee arrangements, investor composition, and geographic exposure as managers adapt to institutional investor requirements and evolving market dynamics.
Summary
The hedge fund industry is experiencing fundamental structural shifts in its investor base and operational strategy, driven by an anticipated surge in institutional capital allocation. According to a comprehensive KPMG International survey conducted in collaboration with the Managed Funds Association and the Alternative Investment Management Association, institutional investors—particularly pension funds and sovereign wealth funds—will become the primary source of hedge fund capital by 2020, displacing high-net-worth individuals from their traditional dominant position. The study projects that pension and sovereign wealth funds will supply more than one-quarter of hedge fund capital inflows.
This capital migration is prompting widespread operational changes across the industry. Robert Mirsky, global head of hedge funds at KPMG International, characterized the findings as evidence of "transformative change affecting every aspect of hedge fund management, from product mixes and fee structures through to markets and investor types." The data reveals that nearly 70 percent of hedge fund managers plan to offer customized investment options within the next five years, while over two-thirds intend to adopt specialized fee structures designed to accommodate institutional investors' specific requirements and risk parameters.
Approximately 46 percent of hedge fund managers indicate they will either modify their investment strategies or develop new products to capture institutional capital, particularly from pension funds. Managers universally expect corporate and public pension funds to constitute their major capital source by 2020, signaling a deliberate repositioning of product design and investment approach to align with fiduciary obligations and asset allocation mandates characteristic of institutional investors.
Geographic diversification is accelerating as capital sources shift beyond traditional centers. Capital inflows from Asia, the Middle East, and Africa are projected to grow at faster rates than inflows from Europe and North America, fundamentally altering the industry's geographic concentration. Complementing this geographic rebalancing, 40 percent of hedge fund managers anticipate changing their investment markets, with more than one-third planning to increase exposure to emerging and frontier markets. This dual shift—in both funding geography and investment geography—indicates the hedge fund industry is recalibrating its strategy to accommodate institutional investor preferences for broader global diversification while sourcing capital from non-traditional regions.
This capital migration is prompting widespread operational changes across the industry. Robert Mirsky, global head of hedge funds at KPMG International, characterized the findings as evidence of "transformative change affecting every aspect of hedge fund management, from product mixes and fee structures through to markets and investor types." The data reveals that nearly 70 percent of hedge fund managers plan to offer customized investment options within the next five years, while over two-thirds intend to adopt specialized fee structures designed to accommodate institutional investors' specific requirements and risk parameters.
Approximately 46 percent of hedge fund managers indicate they will either modify their investment strategies or develop new products to capture institutional capital, particularly from pension funds. Managers universally expect corporate and public pension funds to constitute their major capital source by 2020, signaling a deliberate repositioning of product design and investment approach to align with fiduciary obligations and asset allocation mandates characteristic of institutional investors.
Geographic diversification is accelerating as capital sources shift beyond traditional centers. Capital inflows from Asia, the Middle East, and Africa are projected to grow at faster rates than inflows from Europe and North America, fundamentally altering the industry's geographic concentration. Complementing this geographic rebalancing, 40 percent of hedge fund managers anticipate changing their investment markets, with more than one-third planning to increase exposure to emerging and frontier markets. This dual shift—in both funding geography and investment geography—indicates the hedge fund industry is recalibrating its strategy to accommodate institutional investor preferences for broader global diversification while sourcing capital from non-traditional regions.
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