More Public Plans Using Hedge Funds, Study Shows

Mar 18 2011 | 11:56am ET

The number of public pension plans that invest in hedge funds has increased by more than half over the past three years, according to a new study.

Almost 300 such pensions now have hedge fund exposure, according to Prequin, up from less than 200 at the end of 2007. Another 49 are poised to join their ranks this year, Prequin added.

"Public pension plans are one of the most influential groups of investors and their increased uptake of hedge funds is shaping the new institutional era of hedge fund management," Prequin's Amy Bensted, who wrote the report, said.

Bridgewater Associates, the world's largest hedge fund, is also the most popular with public plans, with 21 such clients. K2 Advisors has 19, Grosvenor Capital Management 17, GAM Holding and Pacific Alternative Asset Management 12 each, and BlackRock 11.

Public systems have also almost doubled their hedge fund allocations over the last three years and change. At the end of 2007, the average pension had 3.6% of their assets in hedge funds; now, it's an average of 6.6%.

The Prequin study also shows that most public plans get their start through funds of hedge funds; four out of five pensions that made their maiden hedge fund investments last year did so with funds of funds, and some 70% of all public plans investing in hedge funds have some fund of funds exposure.

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