GLOBAL – Pensions funds are looking increasingly to make new commitments to funds of hedge funds (FoHFs) at a time when many other institutional investors cut back on allocations from the asset class due to poor returns, according to report by Preqin.

Amy Bensted, head of hedge fund products at Preqin, said: "This is an encouraging start to 2013 for institutional investors, which have cited strong performance as a key requirement that needs to be met in the year ahead."

According to Preqin, FoHFs performed well in January this year, returning 2.1%. Those results follow on from a 4.6% return for 2012.

Bensted said that, out of the 12% of investors planning to increase their allocation to hedge funds, 44% of them are including a FoHF element as part of their search.

"More than half of all investors looking to make new investments in funds of hedge funds over the next 12 months are pension funds, with their large ticket sizes and long-term investment horizons," she said.

However, Preqin also stressed that, even though the asset class had performed well in recent years, the results over the last three year and five-year periods remained sluggish, standing at 1.8% and -0.25%, respectively.

Institutional investors have therefore been disengaging from the asset class since the 2008 financial crisis, leading to a "significant" decline in total assets under management at FoHFs.

Preqin added that 35% of current FoHF investors plan to reduce their exposure to multi-manager vehicles over the next 12 months, with more than half justifying their choice by performance concerns.

Additionally, more than one-quarter of respondents said they were exiting FoHFs, as they felt investing through their own direct-investment portfolios could provide better opportunities.

Preqin said that while North America had seen an increase over the last year in FoHF AUM, from $485bn (€370bn) in December 2011 to $508bn in December 2012, Europe-based funds saw a decline from $375bn to $280bn.