Institutional investors are calling for a higher degree of overall risk management for their portfolios as more than a third (38%) plan to increase target allocations in hedge funds over the next 12 months according to new findings by SEI.

The report entitled The Shifting Hedge Fund Landscape: Institutions Put Fund Managers to the Test, which published findings from an online questionnaire completed by senior investment professionals at 105 institutions, revealed that hedge fund allocations now represent a greater share of respondents' overall portfolios at almost 18 per cent up from 12 per cent in 2008.

As an increasing number of investors are looking to use hedge funds to help them lower portfolio risks in addition to boosting annual returns which are down to six per cent from nine per cent in 2010, the report stated that managers should be fully aware of their overall responsibilities helping clients to understand their investment strategies, performance expectations and the tradeoffs between risk and reward.

Greenwich Associates managing director Rodger Smith said: “Although returns are understandably a top objective, risk management also remains at the front of investors’ minds. Three of the top four goals named by respondents - accessing non-correlated strategies, diversification, and lowering volatility – address investment risks.”

The importance of risk management in investors’ portfolios was also highlighted by SEI’s senior vice-president Philip Masterson. “Investors are clearly looking for better returns, but they are also demanding a higher degree of overall risk management. To stand out and attract investors, managers will have to be more forthcoming not just in how they are enhancing their investors’ returns, but also demonstrate how they manage the portfolio’s risk exposure.”

Share Story: