US - A majority of institutional investors intend to add to hedge fund holdings in their portfolios over the next three years, a new survey by State Street has found.
The firm’s institutional investor hedge fund survey found the biggest increase is likely to come from public and government pension plans. Funds are increasingly turning to hedge funds as they strive for better risk-adjusted returns and broader diversification, but investors differ greatly on investment strategies for the asset class, State Street said.
“Given the uncertainty of the world’s financial markets, it’s no surprise that institutional investors are looking to hedge fund strategies to maximise their portfolios’ risk-adjusted performance,” said Gary Enos, executive vice president and head of alternative investment services.
“The findings of our survey also support the trend that we have seen in which new entrants to the asset class choose the fund of funds approach, while those with more experience in this asset class continue to favour direct investing.”
According to the survey, one third of respondents have at least 10% of their portfolios invested in hedge funds with half intending to have 10% or more invested in alternative strategies by 2007.
At the same time, 16% said they were not invested in hedge funds, but all plan to have some allocation to the asset class by 2007.
State Street said more than half of the survey respondents preferred investing directly in hedge funds rather than fund of hedge funds or investable hedge fund indices. The 7% of participants who began investing in hedge funds in the last year said they preferred only fund of hedge funds.
Investors who have been investing in the asset class for more than a year preferred direct investing with single managers, with a combination of single manager and fund of funds as the second most popular approach, the survey found.
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