A full 28% of the institutional investors polled by Commonfund expect to increase their allocations to hedge funds over the next 12-18 months and 30% expect hedge funds to outperform the S&P 500 in that period.
Commonfund polled 222 institutional investors with combined assets of $239 billion for its second annual Investor Outlook Survey. The figure for expected increases in allocations to hedge funds represents a slight increase over last year's total of 27%..
A majority of respondents (53%) said they would increase their allocations to emerging market equities while 44% planned to increase allocations to natural resources. Another 40% planned to increase allocations to venture capital and private equity and 37% said they would increase allocations to real estate.
On the flip side, the biggest decreases in allocations were expected in U.S. Treasuries, European equities and cash; plus core U.S. fixed income and Japanese equities.
Overall, investor expectations for 2012 are reasonably strong with an average forecast for the S&P 500 Index of 8.3% and a median forecast of 9.0% (almost unchanged from last year).
Institutional portfolios are expected to increase by 7.6%, on average, over the next five years.
"The positive expectations for the markets and asset allocations indicate that participants continue to be positive about 2012 reflecting the continued improvement in the U.S. and much of the world economies," said Verne Sedlacek, president and CEO of Commonfund. "Increased allocations to emerging market equities, natural resources and commodities extend last year's strong outlook and the recovery from 2008-2010."