Institutional Investors Increasing Hedge Fund and PE Allocations

March 29, 2006 ( - State Street Corporation's second institutional investor hedge fund study shows most investment boards and trustees (81%) have become more comfortable with investing in hedge funds in the last year.

In addition, the survey found that 52% of boards and trustees spend 15% or more of their time discussing alternative investments, according to a release on the study.   Respondents also expressed intent to hire more alternative investment managers in the coming year.   The release said 86% of respondents plan to add new hedge fund managers to their current lineup, while 67% plan to hire new private equity (PE) managers.

Nearly half (48%) of respondents have 5% or more of their portfolios invested in hedge funds today. Of this figure, 44% have 10% or more invested in hedge funds, compared to only 35% of respondents to last year’s study who said the same.

Ninety percent of respondents allocate to private equity, the survey found.   Forty-seven percent allocated 5% or more to this strategy, with 19% allocating 10% or more.

Additionally, the results of the study also illustrate institutional investors’ growing appetite for separating asset class returns (beta), and absolute returns (alpha).   By disaggregating risk into “alpha” and “beta” strategies, institutions can better tailor portfolios to fit their specific investment objectives, State Street said.   Eighty-one percent of survey respondents said they engaged new managers for both alpha and beta returns and 59% said they were able to differentiate between a given manager’s “alpha” and “beta” results.   Among the 41% who said they could not differentiate, the majority (82%) attributed this inability to a lack of tools and/or resources.

A copy of the study’s key findings can be obtained by emailing .