A global survey of 181 large pension funds worldwide by Mercer Investment Consulting found that just under a quarter (23%) of money managers are happy with what they’ve gotten in return for their fund of hedge fund positions while just under a half (48%) don’t have an opinion and 28% are unhappy, according to a news release.
Meanwhile, fewer than half of the pension officials polled (47%) pronounced themselves satisfied with their hedge fund of funds manager.
“The lack of satisfaction expressed by investors is likely to be due to a mixture of high expectations and fund managers not explaining their strategies clearly enough,” said Divyesh Hindocha, global head of investment consulting policy at Mercer, in the news release. “While funds of hedge funds are attracting a great deal of attention, many investors are unclear about what they wish to achieve by investing in them, and what the funds can realistically deliver. If investors’ objectives are unclear and their expectations are out of kilter with reality, there is scope for disappointment.”
In other areas, the Mercer poll found that just 58% of respondents understand their fund of hedge funds manager’s investment approach.
Globally, a third of the pension funds surveyed (33%) invest in funds of hedge funds. Even though the fund of funds are currently not meeting many of their expectations, the survey found that 54% intend to increase their allocations to hedge funds within the next two years. The greatest increase is likely to be in the US and Canada, at 62%, compared to 45% in Europe and 42% in Australia and New Zealand, the Mercer poll found.
Of the pension funds that do not currently invest in funds of hedge funds, 19% say they are likely to do so within the next two years.
According to the survey, 20% of pension money managers are likely to use single manager/multiple investment strategy hedge funds in the next 24 months while 13% expect to use single manager/single strategy funds.
Finally, more than a third of survey respondents (35%) are dissatisfied with funds of hedge fund manager fees. On top of the underlying hedge fund managers’ fees, funds of fund managers typically charge around a 1% management fee plus a 5% to 10% performance fee. In fact, of those that do not currently invest in funds of hedge funds, the greatest barrier was fees, cited by 60% of respondents.
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