23/01/2012 Author: David Beattie

Absolute returns score key priority rating as institutional investors seek more 2012 allocations

The ability of hedge funds to provide absolute returns has been named as a key objective by more than 38% of those polled in a joint SEI and Greenwich global industry survey, the results of which were published Monday.

It also found that institutional investors are looking to increase their allocations in the next 12 months, and that while there remains an enduring, if slightly down on-year, appetite for hedge funds, investors nowadays expect more from managers in terms of articulating their value proposition, risk mitigation methodology, and performance expectations.

Of those surveyed, 38% said they plan to increase target allocations over the next 12 months, against 54% in 2010. Hedge fund allocations currently represent a greater share of the respondents’ overall portfolios, at almost 18%, up from 12% in 2008, the survey also revealed.

Although returns are understandably a top objective, risk management also remains at the front of investors’ minds,” said Greenwich Associates MD Rodger Smith. Three of the four goals named by respondents – accessing non-correlated strategies, diversifications, and lowering volatility – address investment risks,” he said, adding that this suggested hedge funds help them lower portfolio risks in addition to boosting returns.

Philip Materson, senior VP Europe at SEI, said: "Particularly in times of market uncertainty, managers must proactively communicate with investors with the goal of reinforcing confidence in the manager's investment process."

Continuing, he said that to stand out and attract investors, managers will have to be more forthcoming, not only in how they are enhancing their investors’ returns, but also through the demonstration of how they manage the portfolio's risk exposure.

In terms of naming the top-three strategies, the survey found that long/short led the field with it being named-check by 82% of respondents, followed by event-driven and credit, garnering 53% and 42%, respectively."