GLOBAL - Mercer Investment Consulting says only 23% of pension schemes are satisfied with funds of hedge funds investments.

Its new survey, 'A global evaluation of funds of hedge funds', found that only 23% are satisfied while 48% are neutral and 28% are dissatisfied.

Yet despite this, 54% intend to increase their allocation to hedge funds within two years, the consulting firm said in a survey. Of those that do not currently invest in funds of hedge funds, 19% intend to start doing so.

Mercer's comments follow the implosion of the Amaranth energy trading hedge fund recently and reported trading losses and possible withdrawals at Vega Asset Management.

Mercer also said that the 'first generation' of investors are now considering moving from fund of funds into single strategy funds.

Mercer said: "When asked to rate overall satisfaction with their funds of hedge funds manager, the survey of over 180 large pension schemes worldwide found less than half (47%) were satisfied."
"The lack of satisfaction expressed by investors is likely to be due to a mixture of high expectations and fund managers not explaining their strategies clearly enough," said Divyesh Hindocha, the firm's global head of investment consulting policy.

He added: "While funds of hedge funds are attracting a great deal of attention, many investors are unclear about what they wish to achieve by investing in them, and what the funds can realistically deliver." Just a third of European schemes understand their funds-of-hedge-fund manager's investment approach.

Globally, a third of the pension funds surveyed (33%) invest in funds of hedge funds.

Meanwhile, Hedge Fund Research has said that the pace of new hedge fund launches fell "dramatically" in the first half of 2006 compared to 2005.

HFR said there were 549 new fund launches and 223 fund liquidations in the period, against 1,211 launches and 428 liquidations in the year-ago period.