Big instos lead the way with hedge fund usage, but fees still a worry

A new study by State Street has reaffirmed growing comfort by institutional investors around the world in investing in hedge funds.

The study, some of the findings of which were published at last month’s CMSF conference, shows that more than half of the surveyed pension and other funds were more comfortable investing in hedge funds than they were 12 months previously. The study also showed that they tended to spend about 15 per cent more of their time on discussions about hedge funds. The proportion of funds surveyed which had some hedge fund investments increased from 84 per cent to 96 per cent over the 12 months. The survey was conducted late last year. Participants included global corporate pension funds (21 per cent), public pension funds (32 per cent) and endowments and foundations (44 per cent). Their investable assets totalled more than $US1 trillion. Despite the increasing support for hedge fund strategies and their managers, the survey also pointed to some lingering challenges. These included risk management, valuations and fees. High-profile fund manager “debacles” had prompted boards to call for more robust risk management programs, the study said. About a third of respondents said that the greatest threat to hedge fund investing was high fees offsetting nett returns. About 20 per cent said headline risk was the greatest threat and another 20 per cent said investment loss was the greatest threat. The number of hedge fund managers hired directly by client funds, rather than funds of funds, increased. A total of 56 per cent said they used more than 10 direct hedge fund managers compared with 48 per cent which did so a year earlier.