A study conducted by State Street Corporation shows that 81% of investment boards and trustees of institutions are more comfortable with investing in hedge funds than in the past year and 52% of them spend 15% or more of their timing considering alternative investments, the company said in a press release.
The survey also highlights that most institutions plan to expand their lineup of private equity and hedge fund managers in the next year or so.
"All signs indicate that what began as a niche category catering mainly to high-net-worth individuals and U.S. endowments and foundations has become a permanent fixture within a broader set of institutional portfolios," said Gary Enos, executive vice president and head of State Street's alternative investment servicing business. "Satisfied customers go a long way toward explaining the industry's proliferation. Our study reveals hedge funds are meeting institutional investors' expectations with an astounding 100% satisfaction rate in achieving portfolio diversification as well as high marks for lowering portfolio volatility and increasing absolute return."
Institution have continued to increase their allocations to hedge funds and equity, as 48% of the survey respondents have 5% or more of their portfolio invested in hedge funds, up from 35% in 2004.
The results of the survey also illustrate institutional investors' growing appetite for separating asset class returns.
"As investors become more aware of the benefits of separating alpha and beta, asset managers who can provide a wide range of beta exposures and interchangeable alpha sources are uniquely positioned," said Jane Tisdale, managing director of hedge fund strategies for State Street. "Access to customizable resources such as alpha porting techniques offer increased transparency in measuring and rewarding performance and allow the flexibility to increase portfolio diversification with a low tracking error."