Hedge funds remain firm favourite with institutional investors
27 March 2009
Written by Francesca Fabrizi
Institutional investors remain committed to hedge funds
despite the bashing the asset class has received in recent months. In
fact, a large number even plan to increase their allocations in 2009.
This is according to a recent hedge fund study carried out by State Street
in conjunction with the 2008 Global Absolute Return Congress (Global ARC).
State Street's fifth institutional investor hedge fund study canvassed
the opinions of global public and government pensions (37%), corporate
pensions (19%), endowments and foundations (29%) and insurance companies
(5%) with an estimated $1 trillion in total investable assets.
While the study does show a moderate decline in overall allocations to
hedge funds (decreasing from 68% in 2007 to 51% in 2008), the majority
claimed they intended to either increase (49%) or maintain (39%) their
allocation to hedge funds in the next year. The results, says Gary Enos,
executive vice president at State Street, can be attributed to investors'
continued desire to diversify their portfolios.
"Hedge funds have not been immune to the extremely volatile market
environment, and while alternative investments, including hedge funds,
largely outperformed traditional investments in 2008, negative returns
understandably disappointed. Although hedge fund allocations declined
slightly over the past year, we anticipate growth will resume later in
2009, as institutional investors continue to focus on diversification
and risk management."
In spite of this enthusiasm, investors are still acutely aware of the
challenges surrounding hedge fund investing, with 77% reporting that accurately
valuing hedge fund holdings can be problematic. Sixty-four per cent address
this issue with the use of an independent fund administrator. Increased
transparency and more sophisticated risk management procedures are also
key themes for the future of hedge fund investing.
“The recent unprecedented market volatility has prompted institutions
to increase their focus on risk management,” said Enos. “To
address these concerns and the increasingly difficult challenges inherent
in the financial markets, the hedge fund community and allied third-party
providers and administrators are stepping up efforts to develop and expand
risk management solutions for institutional investors.”
The survey also indicated that interest in private equity remained strong,
with half of those surveyed also intending to increase their allocations
to the asset class in the next 12 months.
