Diversification Top Hedge Fund Goal

Date: Friday, April 20, 2007
Author: Institutional Investor - Dailyii

More than four out of 10 institutional investors say diversification is their primary reason for putting money in hedge funds, according to a survey by SEI Investments Co. The Oaks, Pa.-based firm found 43% sought to spread exposure with HFs, while 33% selected hedge funds for absolute returns, 18% for lowered volatility and 6% chose them as part of a portable alpha program. The survey, some details of which were released earlier this month by Infovest21, which conducted the poll, also revealed that:

--33% of respondents say "headline risk" was their biggest concern about hedge funds, followed by failure to reach preset goals (15%), career risk (6%) and bad public relations (4%).

--46% said infrastructure was the most important factor in the HF manager selection process, followed by performance (25%) and portfolio transparency (10%).

--Endowments have been investing in hedge funds on average eight years and four months, compared with five years for pension funds

--Average endowment allocation to hedge funds is 30.2%, compared with 13.2% for pension funds.

--Endowments seek annual hedge fund returns of an average 9.5%, with a standard deviation of 8.3%, while pension funds sought an average of 8.6% with a standard deviation of 10.1%.

--73% of pension funds have increased HF allocations in the past three years, while 63% of endowments have seen no increase over the same period.