Big investors eye loading up on hedge funds: survey

BOSTON Wed Jun 20, 2012 1:53am IST

BOSTON (Reuters) - Pension funds, endowments and charities may soon heap more hedge funds into their portfolios.

Nearly one third of institutional investors said they have too much cash on hand and not enough money invested in hedge funds, according to a poll released by Russell Investments on Tuesday.

"At least 30 percent of respondents indicated they were below their target weights in hedge funds, private real estate and private equity," Russell wrote in its 2012 Global Survey on Alternative Investing, a biennial survey.

Of those polled, 45 percent said their cash positions exceed their target levels, suggesting they are being cautious and waiting for the right opportunity to redeploy resources. And 32 percent said they may increase their allocations to hedge funds and private real estate investments.

Hedge funds have long been popular with big investors to help diversify their portfolios and boost returns. The demand is continuing to grow, Russell researchers found.

"In an environment characterized by low returns, a high level of global economic uncertainty and financial market volatility, alternatives are a critical component of a diversified, multi-asset portfolio," said Julia Cormier, director of alternative investments at Russell.

Indeed, a number of U.S. state pension funds are searching for hedge fund investments. Last month, North Carolina's $75.9 billion state pension plan put $100 million into Patrick McCormack's Tiger Consumer Management and $40 million into Jonathan Auerbach's Hound Partners, and the plan is continuing to look at other hedge funds, a spokeswoman said.

One big change in the industry will be how institutional investors select managers. While they long relied on industry middlemen including so-called funds of funds, which select a portfolio for hedge funds for clients for additional fees, penny-pinching state treasurers and others are now looking to cut out these extra costs.

Currently 49 percent said they use funds of funds, but only 17 percent who use them now say they expect to keep using them over the next one to three years, the survey found.

Russell, which has $2.4 trillion in assets under advisement, has polled institutional clients every other year since 1992. This year's survey was conducted between January and March and questioned 146 institutional investors that jointly invest $1.1 trillion in assets around the globe.

(Editing by Leslie Adler)

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