Investors Satisfied With Hedge Fund, Alts. Investments

Jul 29 2008 | 11:19am ET

A new investor survey conducted by Bank of America is sure to bring smiles to the faces of a few hedge fund managers.

High net-worth individuals with alternative investments expressed greater satisfaction over the last 12 months with every category of alternatives, including hedge funds, venture capital, real estate and private equity, than with their more traditional investments.

Specifically, 57% of wealthy Americans who invest in hedge funds expressed satisfaction since their initial investment, with only 5% expressing dissatisfaction. When asked to describe their perceived level of risk for certain investments over the next five years, 54% of investors in alternatives viewed hedge funds carrying risk, while only 17% perceived risk around stock mutual funds.

Nearly six in 10 wealthy individuals surveyed said they are more likely to invest in a hedge fund that is registered with the Securities and Exchange Commission than a non-registered fund. And close to half of investors in any type of hedge fund instrument also said they are more likely to invest in an SEC-registered hedge fund.

Some 48% of the 400 respondents and 51% of those invested in hedge funds said they were more likely to invest in a hedge fund that has been carefully screened. Just 24% of respondents and 18% of those invested in hedge funds did not believe third-party screening was important.

"Our study demonstrates that, despite the portrayal of hedge fund investors as risk-takers investing in aggressive managers, many high net-worth investors have a realistic understanding of the risks associated with their holdings and realize that large alternatives managers are institutional in their investment approach and the quality of their investment professionals," said David Bailin, president, Bank of America Alternative Investment Solutions.

Negative stories published about hedge funds appear not to have deterred experienced hedge fund investors, according to the survey's findings. When asked if negative publicity about the industry impacted their investment decisions, 44% of those invested in hedge fund vehicles said “no” and only 20% said “yes.”

Bailin said the majority of respondents with investments in hedge fund vehicles said that they are not deterred by the possibility that they will lose more money than they can afford to by investing in such funds, and only 10% said they were afraid.

Respondents to the survey were high net-worth investors with more than $3 million in investable assets. Of the survey respondents, 267 held investments in alternatives overall, including 92 in hedge funds or funds of hedge funds.


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