Institutional investors drawn to hedge funds

The number of institutional investors jumping on the hedge-fund bandwagon is on the rise, according to State Street Corp.’s annual survey of institutional investors.
According to the study, more than half of respondents indicated that their governing bodies are more comfortable investing in hedge funds than they were 12 months ago.
The percentage of investors without any hedge fund exposure in their portfolio fell to 4% from 16% in 2006.
Meanwhile, the number of funds-of-hedge funds used by institutions has declined, as nearly a third of institutions indicated they didn’t use fund-of-funds managers, as compared with just over a quarter of institutions in the 2006 study.
Half of institutional investors said the negative financial effects of recent highly publicized hedge fund manager debacles on institutional portfolios prompted their boards to call for a more robust risk management program.
“Investment boards are overwhelmingly accepting that hedge funds are a viable option for their investment allocations,” said Gary Enos, executive vice president and head of State Street’s alternative investment servicing business, in a statement.
“They are also discovering the various ways hedge funds can be incorporated into portfolios based upon investors’ risk appetite, return targets and overall investment objectives.”
The report surveyed 45 hedge funds with a combined $1 trillion in assets under management.