Institutional Demand for Hedge Funds Expected to Triple

October 10, 2006 ( - A new study finds that global institutional demand for hedge funds will triple by 2010 from $360 billion currently to more than $1 trillion.

The study from The Bank of New York (BoNY) and Casey, Quirk & Associates LLC entitled “Institutional Demand for Hedge Funds 2: A Global Perspective” revealed that the percentage of institutions investing in hedge funds will increase to nearly 25%, up from 15% currently, according to a press release on the study. The majority of asset flows to hedge funds will be from retirement plans, with US corporate and public pension plans accounting for the largest percentage increase, the release said.

A 2004 study by BoNY and Casey, Quirk predicted US institutional investment in hedge funds would increase to $300 billion by 2008, and that is proving to be in line with actual US institutional investment. The study attributes the increasing hedge fund demand to broadening acceptance of alternative investments and a search for better returns.

According to BoNY and Casey, Quirk’s findings, institutional investors’ experience with hedge funds will lead to less constrained, active investment techniques for the future. “The study shows that today’s hedge fund techniques will be tomorrow’s mainstream investing,” said Kevin Quirk, a partner at Casey, Quirk & Associates, in the release. “This paradigm shift will be driven by the need for institutions to generate better overall portfolio returns as well as by their increasing comfort with techniques such as shorting, derivatives and leverage.”

Other key findings of the study included:

  • Institutional investors’ ability to identify and assess quality hedge fund managers will dramatically improve.
  • The vast majority of institutions investing in hedge funds use either fund-of-hedge funds exclusively or a dual approach, accessing hedge funds concurrently through fund-of-hedge funds and direct investments.
  • Fund-of-hedge funds will remain the starting point for the majority of institutional investors. The study predicts that half of global institutional flows will go to fund-of-hedge funds and the other half to direct investments over the next five years.
  • The single most important factor that could change growth expectations for hedge funds would be if fund-of-hedge fund managers meaningfully underperformed the net return expectations of institutional investors. Scandals and regulation were also important factors affecting predicted growth.

For a copy of the study report, contact Kevin Heine at