regional investor overview

Regional Investor Overview

Regional Investor Overview Americas Nuvest Capital

Northeast (New York, Connecticut & Massachusetts)

As the center of the financial industry, New York houses the largest number of institutional hedge fund investors in the world. The largest percentage of investors are name-brand fund of funds based in New York and the surrounding areas, but there is also a healthy mix of old and new family offices, pensions, endowments and foundations that each allocate directly lo hedge funds.

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Connecticut is home to a half dozen established, multi-billion dollar fund of funds, including some of the world`s largest, UBS Alternative Investment Solutions and K2. Most investors, including GE's corporate pension and the Common Fund, sit in the southern part of the state. Further north, in New Haven and Hartford, there are a few notable end-allocators including Yale University’s endowment, the University of Connecticut Foundation, and insurer Aetna.

Boston is home to several leading endowments (MIT, Harvard, Tufts) and major consultants(NEPC, Meketa and Cambridge). On the non-institutional side, Boston also includes a good number of multi—family offices and advisors. Which together make up the largest group of investors by number. There are a few direct allocating pension investors in the region as well. But we have not seen these group active in making new allocations and /or meeting with new managers.

Appetite in the region is strongest in the Boston region for Equity L/S and fundamentally based managers. There is some bias toward independent boutique firms as opposed to larger asset managers. Boston investors are also very sophisticated and have been investing in the emerging markets for an extensive period of time.

Mid-Atlantic (Pennsylvania, Washington D.C. , Virginia & NC)

The bulk of allocators based in Virginia have ties to UVIMCO (University of Virginia's endowment) or VRS (Virginia Retirement System). As a result, these investors display very similar investment views and strategy preferences. VA investors have a long history of investing in Equity L/S and biased toward fundamental strategies.

Historically these investors have approached emerging markets through traditional long only or equity L/S managers. In addition to UVIMCO, VRS and Spider Management (U. of Richmond’s Endowment).There are several outsourced CIOs that manage portfolios for smaller endowments, foundations, and pensions, including investures and Cornerstone. The remaining investors are a mix of high quality family office investors and boutique Fund of Funds.

Washington also has a number of smaller endowments and foundations with direct HF allocations, but with smaller portfolios and are less active in their allocations (Brookings Institute Georgetown, George Washington. American Red Cross, Smithsonian and Howard Hughes.) Some notable pensions in the area include Lockheed Martin, National Rail, and World Bank Pension, who are all opportunistic and active in alternatives.

Washington D.C. is predominately comprised of institutional end investors, several of which have ties in World Bank Pension. (KAUST, Strategic Investment Group and Rock Creek).

Philadelphia has a handful of high quality institutional FOFs (Morgan Stanley AIP, Altalus, SEI), several direct institutions (U Penn, Ascension Health, and Haverford) and a large presence of smaller family offices and wealth advisors.

North Carolina has a mix of endowments, outsourced ClO's, and Fund of Funds which all have ties to UNC (University of North Carolina) and Duke. Additional endowment allocators in the area include Davidson, Wake Forest, Global Endowment Management (outsourced CIO founded by ex Duke CIO) and Morgan Creek (a large FOF established by the former UNC team with endowment investors). These investors have exposure to emerging markets through a variety of vehicles, both public and private.

West Coast (California & Pacific Northwest)

The California hedge fund investor network is split between the Northern and Southern parts of the state. The most active state and local pension plans are in Sacramento: Calipers and Sacramento County Employees Retirement Plan. Both plans work closely with their consultants (UBS and Cliffwater, respectively) but also source and conduct investment and operational due diligence on their own.

The San Francisco Bay Area plays host to a group of institutional investors, including university endowments such as Stanford, UC Regents and Berkeley, and other institutional FOFs. The active foundations and local pensions are The William & Flora Hewlett Foundation, Gordon E. & Betty I. Moore Foundation and City of San Jose.

Palo Alto, located one hour south of San Francisco has a few significant family offices: CM Capital (Cha Family). Oakhill Investments Management (Robert Bass Family) and Capricorn Management LLC (eBay Family) and Meritage (Jim Simons, Renaissance Tech).

Southern California has the states largest fund of funds in Pacific Alternative Asset Management Company (PAAMCO) Local university endowments include; California Institute of Technology and the University of Southern California there are other notable family offices/foundations active in alternatives including MIG Absolute Return LLC (Paul Mirage Family), Broad Family Office (Eli Broad Family) Hilton Foundation and the J. Paul Getty Trust.

The institutional nature of the region, coupled with the need for large capacity, creates strong demand for institutional managers with high quality pedigree.The Pacific Northwest is home to several institutional investors, a few endowments/foundations and prominent family offices. A few examples of these investors are Bill & Melinda Gates Foundation, Weyerhaeuser, Vulcan Capital, University of Seattle to name a few. Traditionally, the PNW has had a bent towards managers in the credit, multi-strat or FI space. These investors are not big conference goers and gel most of their deal flow through capital introduction or through word of mouth

The investment community in Seattle is a very tight knit group and they share ideas frequently with each other through the Seattle Alterative Investment Board. Lastly, we have noted over the years that this area is very fee sensitive and the investors in the area do not respond well to products that are highly levered. Several investors from this region have made the trip to Asia or Latin America and are highly interested in Emerging Markets.

The other area with a higher concentration of alternative investors/consultants in the PNW is Portland, Oregon. Portland is home to investors and consultants like; RV Kuhns. Oregon State Investment Board, CTC Consulting and Common Sense Investment Management.

Oregon State Investment Board and many others have started to go direct to HFs and actually have hired a head of alternatives to disintermediate their exiting FoF book. Again, these groups don't traditionally see much deal flow.

We are one of the few cap intro teams to service this region on a regular basis. The investors in this area tend to like bigger brand names or new managers with quality pedigree. There has not been much discussion from these groups about EM.

Midwest (Chicago, Ohio & Missouri)

The Illinois hedge fund investor base is centered in Chicago, and is considered to be among the most experienced allocator communities in the US. The major investor groups are institutional fund of funds, followed by foundations, endowments and family offices.

Grosvenor Capital Management, the 5'” largest hedge fund of funds manager in the world with approximately $758 in assets under management, together with Mesirow Advanced Strategies and Aurora Investment Management. which run $14 billion and $11 billion, respectively, are major investors in L/S equity, and are particularly focused on pedigreed managers with renewed capacity.

There are also several large managed account platforms which invest globally across strategies There are several $1- $5 billion Fund of Funds in the region as well.

Chicago is also home to a number of family offices and major US foundations that invest in hedge funds, including the Prttzxer and MacArthur Families, as well as the University of Chicago and Northwestern.

Many of these sophisticated investors continue to look for pedigreed Asian and EM managers. Wisconsin has 3 large allocators who are active/becoming active in hedge funds in the State of Wisconsin Investment Board ("SWlB"), the University of Wisconsin Endowment and Wisconsin Alumni Research Foundation ("WARF").

Missouri and Ohio both contain a mix of Public Pensions, Endowments, Foundations and Consultants. Public School Retirement System of Missouri ("MOPERS"),.

Missouri State Employees Retirement System ("MOSERS"), Ohio Public Employees Retirement System ("OPERS"), The Ohio State University, and Washington University are some of the prominent investors in the region, although some are further along the direct investing curve than others.

Southeast (Texas & Florida)

The Texas hedge fund investor community is primarily split between two major cities, Austin and Dallas, with large public institutions located in the state capital (Austin) and prominent family offices located in the business capital (Dallas-Ft.Worth). Houston, the state's largest city, has fewer hedge fund investors.

Austin is home to some of the largest direct public hedge fund allocators in the United States. including four pension funds Teachers Retirement System of Texas Teachers ("Texas Teachers" or "TRS°’), Texas County and District Retirement System (TCDRS), Texas Treasury Safekeeping Trust Company ("Texas Trust"). and Employees Retirement System of Texas.(ERS), which announced it would be going direct in 2012.

ln addition, the University of Texas Investment Management Company ("UTIMCO"), the largest public university endowment in the US, allocates directly to hedge funds. (Texas Permanent School Fund, which is often described as a sovereign wealth fund. allocates through fund ol funds, but is current reconsidering that policy.)

While all of these institutions have relationships with pension fund consultants. most have staff equipped to handle manager sourcing and investment due diligence directly. All of these investors invest solely in the institutional quality, pedigreed managers and their portfolios have global exposure in both equities and credit.

(The same can be said for the major private hedge fund investor in Austin, Perella Weinberg, which runs a fund of funds business that incorporates an outsourced CIO platform.)

Dallas, on the other hand, is populated with smaller, private family offices that have been long-time hedge fund investors. As many of these FOs are familiar to each other, managers can leverage this community by meeting with the notable groups and Benefitting from word-of-mouth. The Dallas FO community includes various firms tied to multigenerational dynasties, such as Crow, Hunt and Bass (in Ft. Worth).

They have historically invested in pedigreed L/S equity and credit managers, but also have an appetite for high profile launches. Dallas is also home to AT&T's pension fund, one of the largest corporate pensions in the world and a direct hedge fund allocator.

The nearby Ft. Worth community includes Crestline, the Bass-founded institutional fund of funds, as well as three institutions that directly allocate to hedge funds, Cook Children's Health Care System. Employee Retirement Fund of the City of Ft. Worth and the endowment of Texas Christian University ("TCU").

Houston’s investor base is primarily high-net worth that invest via small multi-family offices. The hedge fund investor community is significantly smaller in number than Austin and Dallas.

There are two major private players: fund of funds Salient Partners and Covariance Capital, an outsourced CIO seeded by TIAA-CREF. The endowment of the University of Houston System, a public university, also invests directly.

It should be noted that Texas has several private college endowments that invest directly in hedge funds, and they are generally accessible through their consultants. In addition to TCU in Ft. Worth, the list includes Southern Methodist University(in Dallas), Rice University (in Houston) and Baylor University (in Lubbock).

The Florida Investment community is split between the Northern institutions (Alfred l. DuPont Trust, Florida State Board and (UFICO) and the Southern Florida Family Office Community. Pre 2008 there was more investors in Florida, but many were hurt by Madoff exposure.

Currently the larger investors in Southern Florida are Genspring, CV Advisors, Forrestal, Gamma and Collins. Most of these investors will look across strategies, but tend to make smaller initial investments.

Canada

The Canadian investor landscape is primarily split between two cities. Montreal and Toronto, with a handful of investors coated in other cities like Ottawa, Bedford. Quebec, Vancouver and Sainte-Foy. We believe out of 30435 allocators in Canada only 26 currently have money to put to work.

There is a heavy concentration of pension plans and endowments in Canada. While most of the investor groups have in-house teams, they also utilize outside consultants (notable names being Albourne and Mercer/Hammond). Overall, Canadian investors tend to be highly "sticky," though they tend to be slower to make investment decisions (13 months or more).

Active institutional allocators in the region include: Ontario Municipal Employees Retirement System, Ontario Teachers, CPPIB, University of Toronto, CN Rail Caisse de Depot, Canadian Pension Plan, BIMCOR and McGill University.

Investors in Canada have a strong focus on absolute returns rather than relative returns and most are still restructuring portfolios post the crisis of '08. Some groups who were heavily invested in FoFs are now in the process investing directly with managers, increasing the demand for product in the region.Canadian investors generally invest in funds where they believe that the organization is strong overall, with particular emphasis placed on infrastructure and risk management systems.

Canadian investors are also extremely focused on creating partnerships and tend to like founders share classes. ln regard to strategy, Canadian investors are interested in Fi RV. Credit, Multi-strat and Emerging Market names.

Unlike many other regions in North America, institutional investors in this region will look at and invest in day one managers

Brazil

The Brazilian investor landscape is predominately split between Rio de Janeiro and Sao Paulo. Sao Paulo tends to house more "institutional" type investors such as FoFs, Consultants and Advisors, Private Banks and to a lesser extent, family offices.

Rio de Janeiro has a much higher concentration of family offices, ultra high net worth's and a handful of FOFs. in our estimation, Brazilian investors make up $1.1 trillion in assets overall.

Historically, Brazil was a difficult place to extract capital due to the fact that the country‘s base-rate of return (LD! Rate) had been as high as l5%, making it a fairly closed off economy. Interest rates crowded out the market and made money market funds very popular providing a high risk·free rate of return.

Five years ago Brazil started investing in equities and today many investors in the region are exceptionally bullish on finding high-quality "stock-pickers" in the form of LS equity to generate consistent alpha going forward.

Most CIOs we work with have a clear idea of their asset allocation models and focused on reducing their traditional concentration to federal securities and diversifying away from fixed income toward equity investments Many have approached US .based managers (as opposed to EU/Asia managers) for ease of due diligence and monitoring.

Under the Brazilian regulatory regime, allocators (not managers) bear responsibility for the clients investment The risk appetite is, therefore, low for non "vanilla" product.

These allocators also require a direct line to the portfolio manager and lack of access is usually a non-starter for Brazilian investors. Because they require access to the PM at all times, large conglomerates with multiple layers of management are generally not of interest.

Many South American pension plans have a hard time seeing real value in offshore hedge funds, preferring long term inflation-linked bonds, with a smaller percentage (<10%) dedicated to hedge funds and private equity.

These plans are conservative by nature and many simply cannot manage the risk. Several plans we work with have had or have some existing hedge fund exposure locally. Others plan on introducing hedge funds as an asset class for the state pension products only and not for their private pension reserves due to the perceived risk profile of these investments.

While most plans do not see a major need for additional hedge fund exposure currently, they believe it can be a way to diversify risk in the future and mitigate currency risk.

The investors in this region traditionally lean towards Global Macro products or Equity L/S. They are not big buyers of credit, Fl or commodities (they get this locally). They do not have an interest in more emerging market exposure —- other than some select Asia names and we find that these investors are looking to diversify away from more EM exposure.

Many investors in the region tell us that the hurdle to "m0nitol" these investments becomes too cumbersome — therefore, the US is an easy place to invest since many of the investors in the region travel to the US several times a year.

Thank You

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