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Fund Of Hedge Funds Account For Almost Half Of All Side Letters

U.S. law firm Seward & Kissel has published their fifth Side Letter Study, which shows that funds-of-funds continued to be the most common category of side letter investor, representing 42% of all side letter investors.

Side letters with government plans and corporate pension plans were the second and third most common investor categories, respectively, of side letter investors, suggesting that the revived interest in hedge funds by these types of investors that the firm identified in last year’s study has continued. Similar to side letters, in the context of separately managed accounts, funds-of-funds remained the most common type of investor.

Excluding certain outliers, the average regulatory assets under management (“RAUM”) of the 'Mature Managers' - those operational for more than two years - in the Study was approximately $5.1 billion (as compared to $4.9 billion in last year's study). The average RAUM of 'Newer Managers' - those less than two years old - in the Study was approximately $387 million.

A slightly lower percentage (44%) of side letters contained a most favoured nation clause than in last year’s study (48%). 

“Our fifth Side Letter Study has again unearthed valuable insights into the continued evolution of hedge funds and their investors. The Seward & Kissel 2019/2020 Hedge Fund Side Letter Study demonstrates strategic choices being made by hedge fund managers and their investor base alike," said to Kevin Neubauer, a partner in the Investment Management Group at Seward & Kissel and lead author of the study.

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