It's not exactly a shock, but tangible confirmation is always nice. Alternative investment research firm Preqin found in a recent survey that institutional investors are happier with their hedge fund returns now than they were a year ago. But, the gaps between happy and sad aren't as wide as you might expect.
A September 2009 survey of institutional investors revealed that 62% say "hedge fund returns have met expectations," compared to 53% in October 2008, when the market was consumed by all kinds of calamity. Only 11% responded this year that "hedge funds have exceeded expectations," which is up slightly from last year's 9%. Remember, though the market hit its worst late last year, the problem was building momentum for a while. Participants who do not feel that hedge funds have hit the mark shrank from 38% last year to 27% this year. And 66% are confident or very confident that their hedge fund investments will reach their objectives.
So, the investors seem to feel that they're better off this year than they were last year, even if we're still pretty far from the pre-financial crisis glory days.
In the spirit of "wait and see," just over half of respondents are planning to maintain their current hedge fund investment levels for the next 12 months. Some 29% are planning increases, and 20% are considering scaling back.
With 80% of institutional investors either staying the course or amping up their allocations, what's the motivating factor? For 54% of survey participants, it's diversification. Half want to improve their portfolios' risk/return profiles, with 2% interested in increasing overall returns and 2% accessing new strategies or areas of investment.
The past year has been ... ummmm ... eventful. Institutional investor confidence in hedge funds took a hit. Hedge fund assets under management are down, and there are fewer of these vehicles out in the market. But, the situation isn't bleak. Funds that can prove themselves to investors, Preqin says, are most likely to find support from institutional investors -- especially if they relax their terms and conditions (and fees) a bit.
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