State Street Study Shows Institutional Investment In Hedge Funds Is On The Rise

According to the 2007 State Street Hedge Fund Research Study, nearly two thirds of institutional investors are now allocating more than 5% of their portfolio to hedge fund strategies, while only 4% have no hedge fund allocation. In comparison 2005 and 2006 study results showed less than half had more than 5% allocation to hedge funds and 16% had no allocation.

Although institutional investors allocations to hedge funds are relatively small, they represent the fastest growing segment of direct investors to hedge funds.

92% of institutional investors surveyed expressed either an "increased" (52%) or "maintained" (40%) level of comfort with hedge funds over the previous 12 months. Hedge funds also earned high marks from institutions for increasing absolute portfolio returns. 65% of respondents said their hedge fund investments matched expectations for gains in the absolute return of their portfolio, up from 57% in 2006.

According to the report, hedge funds and hedging strategies are becoming an accepted part of, if not a conventional choice in, the investment portfolios of institutional investors. Hedge fund strategies are continuing to evolve and some hedge funds are adopting new business models, while some traditional investment vehicles adopt hedge fund-like characteristics, blurring the line between alternative and traditional investing.

Joseph Hooley, Vice Chairman of State Street says in the report "What we have learned from these studies, customers and industry participants is that hedge funds are becoming less "alternative" all the time...Investors are beginning to see beyond the isolated cases of fraud and mismanagement that brought negative attention to the industry," and, "We believe plan sponsors and other institutional investors will be able to successfully navigate the risks and mine the opportunities in these important investment products."

The 2007 State Street Hedge Fund Research Study was conducted with the input of global asset owners that collectively manage more than ¤1 trillion in assets, representing corporate pension plans (21%), public and government pension plans (32%) and endowments and foundations (44%).