Francisco

Evolution of Hedge Fund Investing: Institutional Investors Go Direct

Francisco, Mattias, Ed, Jan

Major institutional investors including AXA Investment Managers, AP3, CalPERS, and PGGM are shifting billions in hedge fund allocations from traditional fund-of-funds structures to direct managed accounts to reduce costs, eliminate middle layers, and gain control over portfolio construction. This strategic transition addresses operational risks exposed by the 2008 crisis and allows these entities to negotiate favorable fee terms while demanding specific exposures like alternative credit or systematic risk premiums previously unavailable. Consequently, these pension funds are building internal teams of varying sizes to manage daily stress testing and risk budgeting directly, thereby moving toward "fund of one" structures that offer customized liquidity and concentrated positions.