Institutional Investors To Up Hedge Fund Allocations In 2014

Mar 21 2014 | 9:59am ET

The majority of institutional investors polled by Deutsche Bank plan to increase their allocations to hedge funds in 2014 and almost half intend to add more than $250 million.

The bank's Hedge Fund Capital Group surveyed 400 hedge fund investors representing over $1.8 trillion in assets for the 12th annual Alternative Investment Survey, released in February.

More than 50% of respondents added to their hedge fund allocations in 2013 and a full 80% felt those investments—which returned a weighted average of 9.3%—had met or bettered expectations. For 2014, 63% of respondents and 79% of institutional investors are targeting returns of less than 10%. Long/short equity and event-driven are the most sought after strategies this year.

The survey also found  the percentage of respondents embracing a risk-based asset allocation approach has increased from 25% in 2013 to 39% this year. This could also be good news for hedgies, as a risk-based approach “effectively removes historical constraints on the percentage allocation to absolute return strategies, allowing equity long short managers to compete with long-only and fixed-income absolute return funds to compete within the overall fixed income risk budget.”

Institutional investors today account for two-thirds of hedge fund assets compared to one-third before the 2008 financial crisis.


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