Many investors still see strong upside potential in alternatives despite news of public pension plans pulling back from hedge funds, according to recent data.
In a joint survey conducted by Quinnipiac University’s School of Business and Connecticut Hedge Fund Association, plan sponsors were more bullish on alternatives than US equities, or indeed any other asset class.
More than 50% of respondents were optimistic about private equity while nearly 30% were favorable to hedge funds.
Source: Quinnipiac University and the Connecticut Hedge Fund Association
Corresponding to these attitudes, plan sponsors also said they planned to increase their allocations to alternatives over the next 12 months.
“These anticipated allocation decisions suggest that the alternative investment industry will continue to grow into the near future,” the report said.
Of those surveyed, 64% were currently allocating to hedge funds directly, while about a fifth of plan sponsors invested both directly and through funds-of-funds.
Going forward, more than half of plan sponsors said they would up allocations to event-driven hedge funds. Global macro strategies followed closely with 30% of investors saying they would increase allocations.
Investors saw least potential in managed futures strategies as 20% of those surveyed said they would decrease allocations.
They survey also found investors were increasingly turning to fund managers with longer track records and larger assets under management.
“This further supports the hypothesis that the hedge fund industry is consolidating, with new investment going to the larger firms,” the report said. “This has important return implications, as academic research suggests that smaller hedge fund managers outperform larger ones.”
More than 65% of surveyed plan sponsors said they require more than three years of performance track record from hedge fund managers prior to committing to an investment. About half of investors also said they preferred funds with more than $1 billion in assets.
(Source: Quinnipiac University and the Connecticut Hedge Fund Association)
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