“The pace is starting to pick up quite rapidly,” said Shane Clifford, executive vice president, head of U.S. & Americas business development at Permal Group Inc.
Clifford said it has taken awhile for hedge funds to gain traction but he predicts their use will accelerate significantly over the next 10 years. Clients are starting to see that hedge funds are changing and evolving with the industry, said Chris Greer, managing director, Global Prime Finance, Citi Global Markets.
Institutional allocations to hedge funds are “going way up,” he added. Towers Watson found that institutional investors continue to diversify their investment portfolios into alternative assets (see “Alternatives Continue to Attract Institutional Assets”). In 2012, Towers Watson’s clients—pension funds, sovereign wealth funds and insurance companies—allocated 70% more assets to hedge fund and private market strategies than in 2010, reaching $12 billion for the year.
In 2012, the number of hedge fund mandates awarded to direct funds continued to increase, especially in the macroeconomic, fixed-income and reinsurance areas. Similarly, in private markets, real estate, private equity and infrastructure, direct funds received the vast majority of assets.
Hedge funds are here to stay and will be a critical part of asset allocation going forward, said Joseph Maccone, executive director and national sales manager, alternative investments, at UBS Global Asset Management. However, education is needed about hedge funds because they are often painted in the wrong light, he concluded.