US - Hedge funds still remain a secondary source of capital for US corporate and public pension funds who still have less than 1% of their portfolio invested in them.
According to research compiled by Greenwich Associates, US corporate pension funds invest just 0.9%, while their public counterparts invest 0.7% of their portfolio.
Hedge funds make up just 1.9% of the $6.5trn under management held by US institutions, notably less than the amount invested in other alternative asset classes like private equity (3.6%) and equity real estate (3.9%).
In direct contrast with pension funds, allocations among US endowments have grown 12.3% of total assets which, according to Greenwich, should serve as a indicator for pension schemes to embrace hedge funds.
“The hedge fund industry is waiting for the second stage of institutional investment to begin,” remarked Greenwich consultant Rodger Smith (pictured). “The first stage was dominated by US endowments, while pension funds experimented with relatively small investments.”
However Smith believed the next influx of investment will come from pension assets but warned funds’ must work out how to properly integrate hedge funds into their portfolios.
Greenwich also advised pension funds to build up their hedge fund portfolio over the long term.
“If you are a pension plan sponsor investing in hedge funds, you should be looking to gradually build your allocations to a level of 5% of total assets or higher, or you should put your money and your time to work elsewhere,” commented Greenwich consultant John Webster.
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