Private Equity Inflows vs Hedge Fund Inflows

Private Equity Inflows vs Hedge Fund Inflows

Mountains-1024x683 Private Equity Inflows vs Hedge Fund Inflows

BlogKMC-copy Private Equity Inflows vs Hedge Fund Inflows

Article written by Ken Carmody.

A recent survey conducted by Ernst & Young (EY) reveals that Hedge Fund inflows are now on par with Private Equity (PE) inflows. The last few years have seen allocations to hedge funds dramatically reduce comparatively to venture capital (VC) or private equity investment inflows. This is mainly due to the underperformance of hedge funds in recent years. However, since the sell off in March/April 2020 we have witnessed outperformance in hedge funds.

The trend had indicated further reallocation from hedge funds with Investors allocating 40% of their portfolios to hedge funds in 2018, reducing to 33% in 2019 and 23% in 2020. Conversely, 2021 has seen a change in trend with investors allocating 28% of their portfolios to the asset class.

How does this compare with PE inflows?

With hedge fund inflows we saw a downturn in allocations met with a very recent resurgence. However, PE and VC inflows have remained steady in their rise higher. Investors allocated 18% of their portfolios to private equity or venture capital in 2018, followed by 26% in 2019 and 2020 and 27% this year, this being on par with the hedge fund allocations at 28%. The next closest allocation is that of real estate but this asset class has seen a downturn in 2021. Investors distributed 20% of their portfolio in real estate in 2018, followed by 23% in 2019 and 26% in 2020. Allocations for real estate in 2021 stand at 24% of investors portfolios.

Interestingly, hedge funds have been boosting their exposure to PE and VC led by investors increased comfort level for this type of risk. The EY survey found that 21% of hedge fund managers increased their exposure to PE and VC within the last two to four years.