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Study Forecasts Increased Institutional Investment In HFs By 2010

Date: Wednesday, October 11, 2006
Author: Dailyii.com

A long awaited study from the Bank of New York and Casey, Quirk & Associates released Tuesday showed that institutional investment in hedge funds will climb from 15% to 25% by 2010. The study, titled “Institutional Demand for Hedge Funds 2: A Global Perspective,” is based on information acquired from 100 interviews conducted with experts from hedge funds, fund of hedge funds, consultancy firms, and institutional investment facilities. Results indicate that worldwide institutional investment in HFs will grow from $360 billion to a whopping $1 trillion. Though the number seems shocking, the last study produced by BNY and Casey, Quirk in 2004 met expectations—they predicted institutional investments in HFs would grow from $60 bln to $300 bln by 2008. The main explanation of the expected growth is the need for higher ROI within retirement funds. According to the Financial Times, the average portfolio comprised of 60% stocks and 40% bonds only yields a 7% ROI, an insufficient return for retirement fund expectations. Institutions that have committed to HFs have come to expect 8 to 9% and almost all of those interviewed for the study reported satisfaction with HF investments. The FT notes that despite current rates indicating higher HF investments in U.S. versus the UK, the report predicts that by 2010 25% of all institutions will have money in HFs. The report also states that the shift toward more global investment in hedge funds will force investors to learn more about alternative investments as a whole. Kevin Quirk, a partner at Casey, Quirk notes: “The study shows that today’s hedge fund techniques will be tomorrow’s mainstream investing. This paradigm shift will be driven by the need for institutions to generate better overall portfolio returns as well as by their increasing comfort with techniques such as shorting, derivatives, and leverage.”