(May 23, 2013) — Institutional investors are demanding more commitment from their hedge funds, asking them to take fewer partners and create stronger relationships, research has claimed today.
The Alternative Investment Management Association (AIMA) Investor Steering Committee noted pensions and other large asset owners wanted hedge funds to partner with a smaller crowd and work more strategically together.
In this regard, the committee also reported that institutional investors were using hedge funds as a tailored addition to a portfolio, rather than allocating to them as a specific, stand-alone asset class.
“What our paper shows is hedge funds are increasingly regarded as tools that enable investors to customise their portfolios and achieve individual objectives in terms of risk-adjusted returns, lower correlations, lower volatility, greater diversification and more downside protection,” said Michelle McGregor-Smith, CEO of British Airways Pension Investment Management and member of the AIMA steering committee.
She added that due diligence had retained its strict focus after the financial crisis, with investors allowing up to two years before allocating assets to a hedge fund.
“These investment decisions are not taken lightly,” she said.
Other requests from hedge fund managers included lowering fees and better transparency, along with improvements to governance and operational infrastructure.
Most institutional investors who responded to a survey led by the committee said they had increased their allocations to hedge funds since the financial crisis, with some reporting a doubling of their allocations.
The majority of them planned to continue increasing these allocations in the future – as long as their conditions were met.
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