However, the results of a new State Street survey also show that investors differ greatly on the best way to approach hedge fund mandates, a State Street news release said.
Specifically, according to the news release, more than half of the survey respondents said they prefer investing directly in hedge funds, rather than funds of funds or investable hedge fund indices. Respondents who started a hedge fund position in the last 12 months – 7% – said they preferred only funds of hedge funds. Respondents in the asset class for a year or more said they prefer direct investing with single managers, with a combination of single manager and funds of funds as the second most popular approach, the survey found.
According to the State Street survey, one-third of institutional investors responding to the survey have at least 10% of their portfolios now invested in hedge funds, while half intend to have 10% or more invested in alternative strategies by 2007. At the time, 16% said they were not invested in hedge funds, but all plan to have some allocation to the asset class by 2007. The largest increase will come from public and government pension plans, the survey found.
“Given the uncertainty of the world’s financial markets, it’s no surprise that institutional investors are looking to hedge fund strategies to maximize their portfolios’ risk-adjusted performance,” said Gary Enos, executive vice president and head of alternative investment services for State Street. “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 favor direct investing.”
State Street conducted the survey late last year in conjunction with the 2004 Global Absolute Return Congress (ARC). Survey respondents included global corporate, public and government pension plans, and endowments and foundations with combined investable assets totaling more than $1.2 trillion.
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