Institutional investors are becoming more comfortable with funneling money into hedge funds, according to the second institutional investor hedge fund study by State Street Corporation. The study, conducted with the Global Absolute Return Congress, included a survey of global corporate pensions, 18%, public and government pensions, 42% and endowments and foundations, 40%, with investable assets totaling more than US $1 trillion.
According to State Street’s study, 81% of investment boards and trustees of institutions surveyed have become more comfortable with investing in hedge funds in the past year, and more than half (52%) of these governing bodies spend 15% or more of their time discussing alternative investments. The survey also found that most institutions intend to add new hedge fund and private equity managers to their current manager line-up in the coming year.
“All signs indicate that what began as a niche category catering mainly to high-net worth individuals and US endowments and foundations has become a permanent fixture within a broader set of institutional portfolios,” said Gary Enos, executive vice president and head of State Street’s alternative investment servicing business. “Our study reveals hedge funds are meeting institutional investors’ expectations with an astounding 100 percent satisfaction rate in achieving portfolio diversification as well as high marks for lowering portfolio volatility and increasing absolute return.”
According to the State Street study, nearly half (48%) of respondents have 5% or more of their portfolios invested in hedge funds today. Of this figure, most (44%) have 10% or more invested in hedge funds. This represents an increase over 2004, when only 35% of institutions said they had 10% or more invested in hedge funds.
Institutional investors who participated in State Street’s study also indicated that they have plans to hire new alternative investment managers in the coming year. Eighty-six percent of respondents said they plan to add new hedge fund managers to their current line-up, while 67% said their hiring plans included new private equity managers.