18/01/2011
By Matt Ritchie
Institutional investors are bolstering their commitment to hedge funds, but expect greater transparency and solid risk management infrastructures from managers, according to an annual global study released today by SEI and Greenwich Associates.
The study drew on a survey of 97 senior professionals representing institutional investors, and 14 consulting firms.
Announcing the study, SEI said the results show institutional investors’ confidence in hedge funds is growing, as 54% of survey respondents said they plan to increase target allocations over the next 12 months.
Clarity of investment philosophy was the highest ranked fund selection criteria, with 79% of respondents deeming it “very important”. The focus on risk management infrastructure was second, with 75% of respondents deeming it “very important.”
Transparency was a concern, with 70% of those polled pointing to a lack of transparency as their biggest worry, up from 56% in 2009.
More than three out of four respondents want risk analytics from managers, while 58% of investors named liquidity risk their biggest worry in hedge fund investing. More than 40% saying they have taken steps to enhance the liquidity of their hedge fund investments.
Managing director for SEI’s investment manager services division Phil Masterson said the study confirms that investors are committed to hedge funds but managers must “get and keep investors comfortable with their investment decision.”
“Managers must differentiate themselves through increased transparency, enhanced risk management, and reporting as well as better overall client service to gain and retain assets post-financial crisis and post-Madoff,” Masterson said.
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