Institutional Investment in Hedge Funds to Rise $240B Over Next Three Years

May 4, 2006 ( - Money from institutional investors is predicted to account for more than half of the inflows for the hedge fund industry and expected to climb from $60 to 300 billion over the next three years, according to a recent survey.

Investments from institutional investors and DB pension plans will surpass that of traditional hedge fund investors like endowments and foundations, according to a recent survey  by Connecticut-based consultants Casey, Quirk & Acito (CQA).

The authors of the survey say that about $250 billion (35%) of the institutional investment over the next few years will come from DB pension funds. Even though pension plans account for about 40% of institutional hedge fund capital, only 15% of pension funds currently invest in hedge funds.  

The report also cited some barriers for institutional investors to investing, which include the view that poor performance, or even malfeasance, among hedge fund investments will be more criticized than those made by traditional managers, and that saturation of the market will eventually bring down the returns.

Similar studies have echoed the same forecast about institutional investment in hedge funds, finding that these investors are becoming far more comfortable with the funds that have often been perceived as too risky (See Institutional Investors Increasing Hedge Fund and PE Allocations ).