Home > News > Asset Allocation > Despite Tough Quarter, Institutions Plan to Increase HF Allocations
Asset Allocation

Despite Tough Quarter, Institutions Plan to Increase HF Allocations

While almost a third of institutional investors plan to increase hedge fund investment over the next year, fewer investors are satisfied with hedge fund performance compared to last year.

(August 10, 2010) — Institutional investors have reported waning confidence in hedge funds, which have suffered dwindling inflows in recent months, but new research by Preqin reveals investment in the asset class is beginning to accelerate.

“Despite a slight drop in investor satisfaction in hedge fund returns over the past 12 months, institutional investors are beginning to invest more capital in hedge funds in greater numbers than they were a year ago,” said Preqin’s Hedge Fund Data Manager Amy Bensted in a statement. “It is clear that institutional investors still believe hedge fund investments are a valuable part of their portfolios.”

Nearly a third of pension funds and other institutional investors plan to up their allocations to hedge funds over the next year, Preqin’s research showed. The research firm’s survey studied 50 hedge fund investors worldwide and found that 29% aim to allocate a greater percentage of capital to the asset class over the next 12 months. On the other hand, 56% intend to keep their exposure at the same level. Fifteen percent plan to reduce their hedge fund holdings in the $2 trillion industry.

Meanwhile, reflecting a slight drop in confidence, 69% of investors reported feeling the hedge funds within their portfolios have either met or exceeded return expectations, a decrease from 73% of investors surveyed in 2009.

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Over the longer 3- to 5-year term, 46% of surveyed investors intend to up their exposure to hedge funds.

The news comes as hedge fund returns have continued to drop in 2010 as concerns that the sovereign debt crisis in Europe may thwart a global economic recovery have persisted this year, following 2009’s strong year, when hedge funds returned an average 20%. The asset class lost an average of 0.5% in June after losing 2.6% in May, with the overall sector posting a negative 0.02% for the current year, according to the Eurekahedge Hedge Fund Index, which measures the performance of more than 2,000 funds worldwide.

Yet, according to Preqin, the results of the survey suggest modest flows into hedge funds for the rest of 2010, with a “more significant” increase in commitments from institutional investors coming through 2011.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742
Home > News > Asset Allocation > LGIMA’s Bender Sees Further American LDI Growth
Asset Allocation

LGIMA’s Bender Sees Further American LDI Growth

On the tail of the firm's Long Duration Credit Strategy’s three-year mark – in which it outperformed the Barclays Capital US Long Credit Index – LGIMA’s US fixed-income head sees further LDI mandate growth in North America.

(August 9, 2010) – Legal & General Investment Management America’s (LGIMA) John Bender is predicting further liability-driven investment (LDI)  mandate growth among American private pension plans as his firm’s Long Duration Credit Strategy crosses a virtual Rubicon.

According to a release from the firm, the Long Duration Credit Strategy – which has a duration of 12 years, compared to many core bond strategies that commonly have durations of five years – has returned 10.86% of net fees annually since its inception on July 1, 2007. Conversely, the Barclays Capital US Long Credit Index has returned 8.19% over the same time frame. The three-year benchmark is an important one for almost all vendors hoping to make their way into institutional portfolios, as consultants will rarely recommend products with less than a three-year track record.

“It’s been a challenging market environment, but the team has done an excellent job,” Bender, LGIMA’s head of US fixed-income, told ai5000. “We’re proud of the results.”

Furthermore, Bender is predicting continued growth in the American LDI market. “I think that last decade of returns in equity markets presented clear challenges for the traditional 60/40 blend,” Bender told ai5000. “Equities were flat or maybe a bit up over the last ten years – but pretty close to zero. I think that people are realizing that their pension plans are an important component of any firm-wide risk management enterprise.” While some of the global ex-America accounting policies are being talked about in America, Bender notes, “the private market, as you’d expect, is adopting some reforms before any regulation change. Thus, there is a greater interest in matching assets against liabilities.”

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Few hurdles are to be seen in the LDI market, Bender believes. “Overall, low interest rates are somewhat of a hurdle to growth,” he admits, but asserts that “the duration mismatch in the pension world is on average quite large, so I see them moving steadily toward a more prudent risk/return profile.”



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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