12/08/2010 Author: Edward Dean

Institutional allocations to hedge funds set to increase

Nearly three out of ten institutional investors plan to allocate more capital to hedge funds over the next 12 months, according to a new report released by research firm Preqin.

As the hedge fund sector becomes increasingly reliant on institutional sources of capital, the survey of 50 global hedge fund investors from various institutions reveals that 29% plan to increase their hedge fund investments over the coming year, while 56% expect to maintain their current level of investment in the asset class and only 15% plan to reduce their hedge fund allocation.

In terms of current portfolios, 26% of institutional investors are below their target allocation to hedge funds, while 64% are at their current targeted level of exposure and 10% feel they are over-exposed to hedge funds.

Over the longer term (three to five years), institutional appetite for the sector looks set to increase even further with 46% of surveyed investors planning to increase their exposure to hedge funds and only 10% expecting to reduce allocations.

However, the survey also reveals that investor satisfaction with regard to hedge fund performance has declined slightly from the previous year: 69% of investors feel that the hedge funds within their portfolios have either met or exceeded return expectations, a drop from 73% of investors surveyed in 2009.