Survey: US Institutions Disappointed In Hedge Funds

Oct 28 2014 | 2:11pm ET

U.S. institutions are losing their appetite for hedge funds and private equity, according to a new survey by Pyramis Global Advisors.

The problem seems to be both performance—a full 31% of U.S. respondents felt hedge funds were the investment approach least likely to meet expectations over the long term—and fees—only 19% felt hedge funds and private equity were worth the fees.

Pyramis polled 811 investors in 22 countries during the summer of 2014, including 191 U.S. corporate pension plans, 71 U.S. government pension plans, 48 non-profits and other U.S. institutions, 90 Canadian pension plans, 283 European and 128 Asian institutions including pensions, insurance companies and financial institutions. Together, the respondents had assets under management of US$9 trillion.

Hedge fund managers and private equity firms may want to look to Asia, where 91% of respondents felt the fees were worth it, or Europe, where 72% did.

Among respondents planning an allocation increase to illiquid alternatives over the next one to two years, Asia leads the way with 79%, followed by Europe (57%) and the U.S. (22%).

Canadian, European and Asian institutions think risk-factor investing will prove the biggest disappointment over the long term.

“U.S. plans are currently reevaluating the complexity, risks and fees associated with hedge funds,” said Derek Young, vice chairman of Pyramis Global Advisors, in a statement. “Our survey suggests that U.S. institutions are preparing to move back to a more traditional, back-to-basics portfolio.”

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