DB plans seen as fastest growing hedge investors
GLOBAL - Defined benefit pension schemes are expected to be the fastest growing source of institutional investors into hedge funds, according to a new survey.
"Defined benefit pension plans are expected to represent the fastest growing source of institutional capital as investment policies and legislative changes facilitate new hedge fund strategies," said the Bank of New York and consulting firm Casey, Quirk & Acito.
"Institutional investors' appetite for hedge funds will dramatically increase over the next five years, causing a significant shift in the structural and operational underpinnings of the hedge fund industry," they said.
The comments accompanied a study entitled 'Institutional Demand for Hedge Funds: New Opportunities and New Standards'. It found that US institutional investors' capital for hedge funds could increase from its current 60 billion dollars to 300 billion dollars by 2008.
"The increasing influence of institutional investors in alternative investments and particularly hedge funds will dramatically change the way firms operate and define success," said Brian Ruane, executive vice president at the Bank of New York.
"Successful hedge fund firms will have to balance investment excellence with business, operations and client service acumen if they expect to attract a meaningful share of this capital."
The study found that institutions would place a greater emphasis on lower volatility and risk as more capital flows into hedge funds.
"Interestingly we found that managers of funds of hedge funds are beginning to serve in a more consultative capacity with institutional investors - they are counted on as trusted overall advisors, providing manager search, strategic and tactical asset allocation guidance, and risk monitoring," said Chris Acito, principal of Casey, Quirk and Acito.
The study was compiled from one-on-one interviews with over 50 leading European and US institutional investors and hedge fund managers.