Delegated Investment Management in Alternative Assets

46 Pages Posted: 25 Jun 2014

Multiple version iconThere are 2 versions of this paper

Date Written: March 30, 2014


This paper investigates the institutional investor allocations to real assets, private equity and hedge funds. Institutional investors delegate 85 percent of the asset management of their alternative investments to external managers and fund-of-funds. Institutions relying on these financial intermediaries underperform institutions investing internally (directly) in all three alternative asset classes. Fund size is the most important determinant of the degree of investor sophistication: larger funds pay lower fees, invest relatively more internally, and select better external managers. Larger funds experience diseconomies of scale when investing only in one alternative asset class, while smaller investors obtain better performance when specializing in one alternative asset class instead of simultaneously investing in real assets, private equity and hedge funds. On a net return basis, smaller institutional investors would have obtained at least 2 percentage points higher annual returns had they invested passively in public equities rather than alternative assets over the 1990-2011 time period.

Keywords: institutional investors, alternative assets, investment management, delegation, intermediation

JEL Classification: G11, G23

Suggested Citation

Andonov, Aleksandar, Delegated Investment Management in Alternative Assets (March 30, 2014). Available at SSRN: or

Aleksandar Andonov (Contact Author)

University of Amsterdam ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV


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